Soundblaster 16, being an old card it is, doesn't support multi-channel mixing. That means, only one application can take control of the sound card at the same time.
Now, there is a way around it. Arts (the sound daemon in KDE) supports software mixing. This way, multiple apps can take control of the sound card, as long as it is routed to arts.
Now since you have system sounds turned on in KDE, that means arts is turned on. Now the solution, as far as I can see are these.
1. Open KControl (Start Menu -> System -> Configuration -> Configure My Desktop). Then go to Sound -> Sound System. The number in the field Auto Suspend should be set to 1 second. This way if arts is finished playing the sound, it will automatically let go after 1 second.
2. Use soundwrapper for other sound applications so that it is routed into arts. For example realplayer, open a konsole, then type
soundwrapper realplayer
Then test playing realplayer while the system sound is on. If it works, edit the menu using menudrake to reflect on the changes to the command.