Your sound controllers probably ARE working properly, but your sound card has not been installed. We'll need to install it.
The Everest report indicates you have a Yamaha DS-XG PCI Audio card installed. You'll need to download the drivers for it...they will be found HERE. Get the download for Windows 95/98*Guest and save it to your desktop. Double click the downloaded file to start the installation. I haven't used these particular Yamaha drivers, but usually just running the driver install will install the device. You will have to restart the machine once the installation is finished.
Let me know how this goes.