I spent some time DJing with Traktor using lame-encoded 320 rate MP3s, and they sounded fine. I *did* notice shit quality at lower bitrates, which only happened when I tried playing some "rare" track I had downloaded. Otherwise, I played only the files I had legitimately ripped from the CDs in my collection.

I'm in the process of building a rather large collection of old acid compilation CDs, as I actually prefer the sound quality. Once they're ripped to MP3, I have good sound, and no crackling/muffle/skipping/etc. that could plague the same tracks if I bought them on 10-year-old vinyl.

Everything has its application.