Here's the solution I ended up with. It works with IE7, IE8, IE9, FF3.5, FF4, Safari and Chrome.
<audio id="background_audio" autoplay="autoplay">
<source src="static/audio/clip.ogg" type="audio/ogg" />
<source src="static/audio/clip.mp3" type="audio/mpeg" />
</audio>
<!--[if (!IE)|(gte IE 9)]>
<a href="#" onclick="document.getElementById('background_audio').muted = true; return false">mute sound</a>
<![endif]-->
<!--[if lt IE 9]>
<bgsound id="background_snd" src="static/audio/clip.mp3" autostart="true" loop="1">
<a href="#" onclick="document.all['background_snd'].src=''; return false">mute sound</a>
<![endif]-->