It is allowed. Towards this end blizz has built in a check on login, to see if you've placed any custom audio files to use instead of the default ones. If it doesn't find any, it defaults to the mpq.
The list of all sounds in the game:
http://www.wowinterface.com/download...Cataclysm.html
Then all you gotta do is make a Sound folder like this:
World of Warcraft/Data/Sound
and in it place your custom sound using the file path from the above list, and name it the same as the sound you're trying to replace.
For example, if you want to remove the worgen sniff, in the above list you'll find a bunch of worgen sniff sounds, and they will (for males) have the path of :
Sound/Worgen/Creature/WorgenMale/..... mp3
So in your Sound folder you created, you mimick that exact folder path and then you place your file in it, with the exact name of the file you're replacing.
Whenever you want to go back to defaults, just erase the sound from this folder, and wow will default to mpq.
Statement by blue on this:
http://us.battle.net/wow/en/forum/topic/1021053914
So they allow you to replace the sounds fine. They don't want you to extract their sounds and then distribute them or use them for something else and so on....standard blurb for property rights. But sound replacement is ok.