I played half-life earlier (steam) and the music went across two levels fine.
One thing I noticed that was strange was that if I played Steam Half-life with a music CD it played the cd instead of the mp3's
I guess it just has more priority somehow, but also maybe its the same as mods, since you don't have to include all the half-life wads in your mod, since its in the valve folder. But if you did, it would read those over the valve ones.