the 'cuse' OSS emulation smorivic linked to is an attempt to fix that disastrous mess..
as you said, if you use ALSA's built in OSS emulation, that's a kernel module, and competes with any other ALSA source for the sound device. most newer sound devices (consumer, at least) only support a single playback channel, and expect software mixing to be done... but dmix (ALSA's mixer) is a userspace mixer using the ALSA drivers, which means the ALSA-OSS kernel module can't use it, hence blocking audio (it also means no mixing is available for OSS users, so only one at a time can use OSS)
CUSE is a way of providing /dev/dsp and friends for OSS emulation from userspace, so of course a userspace OSS emulator can use dmix, pulseaudio, or whatever and play nicely with other apps.
CUSE lets a userspace program catch the full range of operations on the /dev/dsp device, so it can be a full emulation, unlike tools like aoss which hack into glibc's open calls and try to detect opens of /dev/dsp and do the emulation there (they can't catch everything, so some stuff works with aoss, other stuff doesn't).