As with the GBA*, the sound is mixed in software. The only difference is that the DAC is 16 bits wide instead of 8, and the coprocessor executing the sound code is much more powerful, so the game designers could afford at least linear interpolation and decent reverb or other post mix effects.
(In both cases, the samples can be in whatever format the designers choose. In the case of N64, it's usually ADPCM. GBA, as far as I know, always 8 bit PCM.)
It might be possible with HLE audio plug-ins, but would probably have to be implemented per game. Most likely more trouble than it's worth.
* Only titles which use mixed PCM, of course...