I use numerous 3D sound loops and they do fade over distance though they can be heard albeit continuously at a lesser volume throughout the level.
The 3D sound command does seem to work therefore - however you have to utilise the whole level area and be able to move through to the extremities before you hear the difference dramatically fade in and out. In a small area or room its not apparent. Control of the range is therefore needed or as suggested perhaps making the original sound fade in at beggining and out at end would provide a workaround. FPSC is full of workarounds - they are something thats not really the answer to the problems.
One other thing that is really necessary is a stop command (other than zone control) otherwise if you have a lot of sounds in a level and they all continuously want to play with disreguard to player proximity then sooner or later you will end up with too many sounds being called at once with the result that some may not be able to play as the number of allowed sounds that can be played by a system all at once is exceeded.
Zones are fine but anyone know for instance if you can overlap many differing types of zones without FPSC getting twisted up? Using many differing types of zones extensively if overlapping in a level could get very confusing I would imagine?
I have not experimented fully with 3D sound and associated commands, but the basic command does control the sound as it should albeit in a limited fashion. As with almost all other areas of FPSC without exception much more flexibility and user control is needed.