It does sound really good. I use a cheapo external mic, but I always forget how to set it up right, or I leave a fan on next to me and forget about it until post, so my audio never sounds perfect anyway.
I shoot a lot of short family stuff on the K-1, nothing I have public, and it does a good job. With a good lens and manual focus it's just fine. Some of the videos on my channel are shot on it, just pointed at myself in the living room, and I personally can't tell it's not from a video centric camera in those settings. Looks good to me (unless I miss manual focus on myself, because I have no flippy-outty screen :P)
One example (shot with Rokinon 14mm). A perfect example of messing up my audio setup:
I always try to encourage people to use what they got for photo or video, and with the K-1 it's no different. Not amazing, but pretty good and in some settings about all you need.