Thanks Eugenio! I was bit too fast...

I got the issue fixed by doing a factory reset, and upgrading from there back to latest. After enabling encryption again I didn't have issues anymore.

I tried 'version --dup' just before resulting to factory reset, but all packages were up to date.

In addition to sound I also had issues with the LED. Csd tests showed that the led still worked, just it did not get triggered in the events with text messages, calls etc.
I also noticed also that any pull menus that normally would have sound to them didn't trigger haptic feedback (haptic was fine with virtual keyboards). Both of these issues may be connected to pulseaudio and order in which SFOS expects things to happen.
So I think your suggestion would have worked.

Well, at least the factory reset has now been tested and working!