This is how you do it if you didn't figure it out yet.
First you open some .lvl file in your Level Editor, for example "Ruined Village Book.lvl" (.../Drakan/Mountain World/Ruined Village/Ruined Village Book.lvl).
Then you open the Databases window from the top menu:
Then go to the Sound tab, and here they are, the sound files. By right clicking a sound you can replace it with a different .wav file.
Only make sure that your new .wav files are not longer than the original ones, cuz they will be cropped in the cut scenes afaik.
And one more thing, while I was making this screenshot, my editor crashed 2 times, I have a WinXP, so I would advice you to install a Win98 on your comp, would be much more stable for the Editor...
And what about the transcriptions, I actually never understood some of the conversations in the game. But AT's novel, The Order Reborn, makes it much clearer, it's like a retelling of the game, only the conversations there are not exactly the same way as they are in the game, but it gives you a good idea of what are the ppl talking about. So you might want to check it out, it's in the fan fiction section: http://arokhslair.net/lore.html