I have an iPod. More songs than I can listen to in a resonable amount of time in a very small package.
I have the stock 6 disk changer head unit for the SE, and an FM Modulator that is wired in between the head unit and the antenna.
There is a slight loss of quality with the modulator, but then again we are talking about listening to lossy music in a vehicle that isn't exactly a quite luxury car either...
Oh, as for MP3 CD's - I carted CD's around for years. Have no desire to fool with them any more - MP3 or not. iPod goes in my pocket, along with all of my music - that's it. No need to carry around any other crap, no CD's to get lost, scratched, melted, etc.
I might eventually swap out the stock head unit to something with an aux in, but so far I haven't been too impressed with any of the kits I saw. the best looking "filler" was a stock Nissan part tray pictured recently in another thread.
It's all relative, and depends on what you want. I used the dock that comes with the iPod at home to charge it at home and load songs (rare to change 'em). I bought another dock and cable, and used the AC adapter that comes with the iPod at my office. Extra set of speakers left over from an old computer system plugged into the dock and I have tunes in my office. Very slick, and nice and independant of my work computer - don't have to worry about loading an MP3 player (our environment is monitored pretty good). When I fly home Saturday, the iPod will be more than up to the 5 or so hour treck home - and it's size will really pay off.