It is a tricky thing, and law varies by location.
It does depend where, here are the rights to use content from Soundcloud:
and from Deviantart:
The terms & conditions weren't violated for the game.
These are examples of the same rights used to allow users to alter content and generate Fan Arts, Remixes & famous lets players like Pewdiepie to monetize other video games. What this game did is very much like what Equals3, Pewdiepie & other famous Youtube celebrities did. The only difference? They actually made a profit from altering content.
I wouldn't even use the .mp3 format unless I get a license from them regardless of it being shown to millions or a few kids.