It wasn't ever played in game to my knowledge...
And you're right, sounds that are too large or too high of quality cannot be played by the engine. The engine has a limited "sound buffer" and if it fills that buffer with a large sound, it may play that sound, but will NOT play any others because it doesn't have the room. (To simplify the concept, basically the engine can only output so much data to your speakers.)
However! Sounds in the Creatures series must be a specific format, and it's not terribly lossy.
Creatures Dev Net. wrote:
The Creatures 3 engine uses ordinary WAV files to produce the sound effects in the game - this means you can use many freeware or shareware tools to create samples.
The quality of the sample will affect how many sounds can be played at any one time. Because the game uses a buffer of a fixed size to store all samples that need to be played, if you produce a sample that is very high quality you may find that it doesn't play when there are a lot of other sounds playing at the same time. Finding the compromise between quality and size can be daunting but nearly all of the samples in Creatures 3 are recorded at 32,075Hz, 16bit Mono - with no noticeable degradation on the samples.