Have just the same situation, the only difference is I have a fresh
install of Karmic Kubuntu.

The problem, I think, lies in poor HDA-Audio support. I've recompiled
alsa with --with-cards=hda-audio key, and somehow it works now (though
not perfect). I did it following this guide:http://help.ubuntu.ru/wiki
/alsa_hda-intel (it's in Russian, but commands you need to type to
Konsole are pretty straightforward).

First I managed to get Amarok and audio from flash on a website working,
now (after several reboots) vlc, flash and amarok play simultaneously.
But the silver lining of this cloud is that Dragon player still has no
sound if amarok (or something else) is playing, so the bug still
persists.

-- 
Under Kubuntu Karmic no two applications can output sound at the same time
https://bugs.launchpad.net/bugs/485351
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