After extensive testing between MD and MP3 quality - MD wins hands down by a WIDE margin.
I used an MZ-R30 w/ D-321 optical recording and a P166 w/ direct CD-DA audio capture and an SB-16 SCSI running L3ENC v.2.61 for the MP3.
The MD won hands down, even with the MP3 quality set to High Quality (256Kbp/sec -- 5:1 compression). The MP3 lost a lot of the imaging on Pachabel's Canon in D, whereas the MD kept almost all of the original stereo imaging. Also, the MP3 tended to crack at high frequencies. Using headphones especially, the difference was very clear.
BTW, I also tried this with the MZ-R2 and the results were essentially identical - MD won by a wide margin.