Long, long ago, there was an option in the sound settings to switch the sound source from your character to the camera. This was very useful for a number of reasons. For one, if your character stands next to something emitting sound like a brazier or something, if you pan the camera to the front you would hear it from the left since it's from the camera's perspective, rather than your character's right.
After a while, this option disappeared. I think it was some time during TBC or early WotLK. When Blizzard was queried on why, it was apparently because very few people used it (kind of a stupid reason for such a simple feature), but you could still enable it via editing the config.wtf manually. And that's exactly what I did. And all was well. Until the 4.0 pre-Cataclysm patch hit, and I was suddenly experiencing severe sound bugs until I tried turning the feature off.
I'm assuming since Blizzard officially abandoned the option, it's still bugged. Though I suppose it doesn't hurt to ask if someone has found a way to make it work still. Can't even find the name of the text line I'm supposed to add anymore.
Its not bugged as such but the sound experience is shut to hell, not only do you have to be zoomed in way close to actually hear sounds but the sound levels change drastically as you move your camera around. Not hard to see (or hear rather) why they removed the option from config
No, it's just flat out bugged. I don't experience the music fading away with distance as you do. When I'm fully zoomed out, some sounds like weapon swings will be be silent, but character sounds, weapon impacts and such will still be heard as if at close distance, and panned to the left on top of that.