Same issue here. MacBook Air 1.6GHz, 18 months old (very early model). Running OS 10.5.6 due to issues with 10.5.7.
Sound functionality suddenly disappeared (menu bar volume control icon gone, keyboard volume controls show 'no entry' icon, sound control panel reports "no output devices" and various apps complain that the machine has no sound output capability).
PRAM zip (restart holding command-option-P-R) solved the issue twice, but it re-occured quickly both times. Now PRAM zap is ineffective. Have also tried repairing permissions, connecting and disconnecting headphones etc, all to no avail.
Seems to be another inherent MBA issue (lots of people reporting the same). I wonder whether the cycles of extreme overheating this machine seems to experience when worked hard has eventually caused something to fatigue.
I have read that some people have solved the problem by replacing an internal audio cable. Would love to hear your experiences and/or stories of cost to get Apple to do the repair.
Any further suggestions greatly appreciated!
All the best,
Phil, Marlow, Bucks, UK