Multiple audio sources are supported, and each source can be a different format (sample rate, bits per sample and number of channels). The sound card will be set to the highest setting of all of the audio sources, and the mixing of different sources is performed by DirectSound.
This means that if you have a good sound card, this will sound good, but if not, it could sound quite bad. Windows NT users should pay particular attention, because at least with version 3 of DirectSound, NT does not support any of the sound board's features, so sample rate conversion will be performed in software, and will sound bad!