Interesting findings from a PC World article:
Many people complain that compressed audio doesn’t sound as good as CD audio. While that may be true if you listen to CDs on an expensive high-fidelity system, our tests with 30 listeners–mostly members of PC World’s staff–show that for most people, music compressed in MP3, WMA, RealAudio, or Dolby’s AAC format is nearly as good as from a CD if the music files are encoded at high enough sampling rates.
We compressed–in all formats and at all bit rates–five different pieces of music. In our double-blind tests, we asked users to listen to two versions (compressed and uncompressed) of each audio segment, and then pick which segment they thought was the compressed version. We then asked them to rate the difference in quality of their pick, assigning a score of five (imperceptible), four (perceptible but not annoying), three (slightly annoying), two (annoying), or one (very annoying). The music was played on a PC using a Sound Blaster Live Platinum sound card with its optional Live Drive expansion component, and a pair of high-end Sony MDR-7506 headphones.
Our testers found that all of the formats scored above four at a bit rate of 128 kbps or higher. However, RealAudio also scored an average of 4.1 when encoded at 64 kbps–significantly higher than the other formats at such a low bit rate. Interestingly, our testers did not rate 128-kbps WMA files any higher than 96-kbps WMA files.
Although MP3 is the most widespread format, it performed the worst at lower bit rates. In particular, it was rated very low at 64 kbps, achieving an average score of only 2.2. MP3 earned much better scores at higher bit rates, effectively matching RealAudio’s marks at 128 kbps and above.
For general use, 128 kbps is fine (or 192 kbps if you have really good ears). If you want to pack a lot of audio into a small amount of memory space, you can take the bit rate down to 64 kbps for RealAudio and 96 kbps for AAC. With MP3, however, the lowest usable rate is 128 kbps; any lower, and the quality drops substantially.
I encode my digital music at 256 kbps AAC although for sharing rough mixes I will often encode 192 kbps VBR MP3. Although I hear differences between 24-bit and 16-bit audio, I have a hard time identifying the difference between 256 kbps AAC and 16-bit/44.1 CD audio on any of the personal audio players I currently own.