Bit of a bump, but... we all know CD is kinda surreal. It might be even more surreal than it already is. I'm starting to think the levels were based on mundane objects, at least at first. "Salad Plains" makes a lot of sense for incredibly abstract CGI trees. Then we have a pinball table, musical instruments, and something explicitly called a workbench. I'm thinking the levels were all based on some regular object at first and ended up getting the alliterative level names later for Cool Points™. Basically, it all sounds very Rayman... and it also sounds very Mickey Mouse.
I'm under the impression that the tracks were always planned to play back in PCM, just for the sake of this demo they included a CDDA version. The PCM playback driver probably wasn't made yet, and at the time of its implementation a few builds later the driver is still kinda fucky. Also that track sounds like it's getting ready to loop right before the fadeout, which it would have no reason to if it was just a standalone track.
Not necessarily. It seems that they were going to use PCM samples to bridge the CDDA tracks to make them loop, note how they cut off instead of fade in the protos. That being said, it's odd that the CDDA past tune fades when the others don't.
I'm sure that track was just the "fully realized" version of that tune produced under whatever workstation they had. It was probably used before the PCM driver was even properly implemented (the 512 proto shows that it wasn't finalized at that point either).