Xbox.com has put up an interview with Bungie's resident audio expert, Marty O'Donnell, about his role in making Halo:

Xbox.com: Ok, nuts and bolts time. How do you actually create a soundtrack like this? Was it composed and synthesized all on a computer, or was it recorded? What's the sequence of your tasks?

MO: I worked in studios that contain many keyboards, synths, and samplers as well as digital recording equipment controlled by computers. I start there, and then when needed, add live instrumental performances to those recordings. When I mix the music, I sometimes eliminate the synth/sampler track and only use the live performance. Very little of the music plays back in the game the way it was originally recorded, however. I cut and edited the music into chunks that the game audio engine could play back dynamically based on the player's actions.

Thanks to Count Zero at HBO.