I tried HTML5 audio on my first game but I could not get it to work perfectly (lag for the first time the sample is played etc).
SoundManager2 looks ok and I tried it a bit in a demo. For the next game I will use it as it has functionality to fall back to HTML5 audio in case Flash is not available.
Both Webkit (specifically chrome) and Firefox have come a long way since this question was asked:
Google's recent recreation of the moog synth using webkit's audio context API made me decide to finally try to build something for webkit. They used a flash fallback for other browsers, and I may do that or I may just wait until the browsers standardize an API for audio and then adapt to whatever that is. The real question is: how soon does this need to be ready? For me, it's experimental and for fun and resume building, so I don't care if I don't have a shippable product for a year or so. But if you need it to work on all browsers NOW, flash is the safest bet. See this article regarding the IE dev team and why they had to use flash audio for Cut the Rope: