I've played around with MP3 off and on for 10 years now, using different encoders and bit rates. I've used WinAmp, iTunes, a CD-based portable player, an iPod, and my VW's CD player (which reads MP3's off CD-R) to play my MP3's along with probably a couple other things that I'm forgetting about. Most recently, I've set up a little Roku Labs SoundBridge M500 in the main system, which I did mainly so we could conveniently have music going while playing with our daughter (instead of having the TV on).

When listening through PC speakers (at least the cheapo ones I have) or mediocre headphones with a PC or portable MP3 player as the source, I find that 192kbps to 256kbps is going to be indistinguishable from the original CD: the rest of the signal path yields so many other sonic compromises that the lossy compression just blends in. Likewise, the stock car audio system doesn't really sound particularly different with reasonably high bit-rate MP3 than it does with CD's. Even at 256kbps, though, I have been able to tell a difference from the original CD when playing through the 990 via the SB500. The differences certainly weren't drastic, but they were there if you listened for them.

Bottom line: If I am sitting down to just listen to some music on the system, I will pull the CD off the shelf and toss it in. I could set up a media server that would let me store my music library in a lossless format (FLAC or simply WAV) and probably be content to use that instead of the original CD's, but the cost (mainly associated with a reasonably reliable drive array to store that much data without risk of a single drive failure wiping it out) is still too high for me to justify it, although I definitely see the attraction and why plenty of other folks have done this. More often than not, though, I use the Roku SB500 and the music is in the background while we're doing other things - for those instances, the damage done by lossy compression is a non-issue.