MP3 sounds fine to me, through my headphones at work, where the headphones and the soundcard are probably the main limiters of sound quality.

However, my local pub sometimes has a DJ who uses two PCs each running an MP3 player, instead of CDs or vinyl. One night, as the place filled up and became noiser, I realised I knew what song I was listening to, but I could not place the pitch; I wouldn't have been able to sing along because I wouldn't know what key to join in at.

Fortunately, I had an audiophile at hand to consult. He told me, there was practically no bottom end and very little top end -- my ears were missing vital information. Perhaps the pub's PA is lacking, but I suspect MP3 wasn't up to this demanding application; competing with the chatter in a noisy bar.