I've never tried outputting anything but WAVE_FORMAT_PCM (ie: wFormatTag == 1). AFAIK, that's the only format waveOut can handle since it's just straight raw PCM data.
I don't know what format 85 is... but a quick google search suggests it might be WAVE_FORMAT_MPEGLAYER3. So if I'm understanding that right -- this isn't really a wav file so much as it's an MP3 file in a .wav container (ie: totally retarded).
Another site suggests it's WAVE_FORMAT_DF_G726 -- which I have no idea what that is.
So yeah I guess nothing is wrong with your code -- the problem lies with you having a compressed/abstact wave file. Get some uncompressed wave files instead and try them out (or try to decompress this wave file by converting it to wav in a conversion tool or something)