If you install the updated driver (it will ask for reboot after install), the description of the sound device becomes SB PCI and the driver is sbpci.sys version 5.
There is simply no consistent pattern/repeatable steps to reproduce the distortion. sometimes Windows logon sound is distorted, sometimes not, sometimes it is just Windows logoff, sometimes both, sometimes neither is distorted). I don't know whether it fixes the problem as I rarely power up the XP VM that I have and the distorted sound is intermittent (e.g.
You could try installing an update downloaded from the Creative website (although it is from late 2002). The device driver (es1371mp.sys) is version dating back to mid-2001 from the standard XP driver set. I don't think the device driver comes from the VMware Tools. The sound device presented in an XP VM is a Creative AudioPCI Ensoniq 1371.