Despite my claim of having given up I had the random idea of plugging in my USB headset and I got sound through my headphones.
Then after this I tried re-enabling the sound card on my Ubuntu VM and doing a test and now the speakers work! What the?
After a bit more playing around I have found that if I plug in my Logitech USB headset and connect it to the host then I can get sound (from the Ubuntu guest) through my headset. If I then un-plug my USB headset from my host (Win7 x64) the Ubuntu sound will work through my speakers! This, however, does not survive even a suspend/resume cycle.
So the steps to get sound are...
1. Start Ubuntu VM (get message in the message log "A device ID has been used that is out of range for your system. Sound will be disconnected.").
2. Login to Ubuntu guest.
3. Connect USB headset to host (use Workstation to connect back to host if initially captured by a running VM).
4. Connect Sound card to Ubuntu VM (via settings).
5. Sound now works for the Ubuntu guest through the headset (test by opening the sound settings dialog in Ubuntu).
6. Now leaving the sound settings dialog open (important), un-plug the headset from the host. Sound now works properly for the Ubuntu guest (i.e., through speakers). If you close the sound settings dialog before un-plugging the headset, it won't work.
If I can figure out how to make this persist I will update my post, but I have a feeling all it will be is a goofy work around, but a work around none the less.
Maybe this set of steps give those who know Ubuntu and Workstation better than myself, some insight into what is really going on here and why keeping that Sound settings dialog open makes all the difference. 