The CPS3 CD-ROM discs contain only the ROM files, I think in Asia they didn't even use the CD-ROM, the ROMs were already loaded on the board. The sound is stored in ROM files in the form of samples played just like in CPS1/2 Q Sound games. Everything is encrypted though and that's why there is no emulator yet.
The XBOX should have no problem emulating CPS3 if it was decrypted, virtual memory can be used.