I just thought I'd add that the sound should travel by open spaces. I could have sworn that I read, at some point in the past, that sound (and smell, I think) was implemented to "propagate" through the level, rather than simply being an event. If that memory isn't false, then I'd like to see it be smart enough to figure out which direction the sound actually came from (rather than just where the source is relative to the PC), and report it to the player.

More specific suggestions for implying distance:
1 tile away from the player: "next to you"
2 to 10 tiles: "very near"
11 to 25: "nearby"
26 to 50: "not too far away"
51 to 100: "in the distance"
>100: "far away"