If you search google for their Skies of Arcadia nfo file, you will see this is clearly what they claim. I won't link to it here due to other material hosted on those sites. The trainer injected into the executable also makes this claim (you can view this on pouet.net).

I have little reason to doubt their claims given their clear technical skill spanning multiple console generations (Echelon might have only been associated with the Dreamcast/PS2, but it's obvious that their 'group' were behind multiple other, very highly technically accomplished scene groups).

Access to the source code is even a possibility - at one point they routinely released games weeks or even months before street dates.

http://dcemulation.org/phpBB/viewtopic.php?f=34&t=97250 is worth a read for an indication of some of the shenanigans that were afoot back in those days.

Honestly, inserting compression doesn't sound impossible. Difficult, but a few months and a team of people and it sounds achievable. Warez folks do some crazy stuff.

However, I read some forums from the time, it sounds like the results weren't great. Mainly folks notice sound triggering noticably late. So uh, Maybe instead of downsampling they built a MP3 decoder, but to use the existing system, it couldn't stream the audio, so they had to decompress the clip completely into a buffer before playback?