I tested the effect of [file] compression with a jury of music professionals, and the results surprised me. Although the type of compression had a definite effect--the judges preferred .wma to .m4a and .mp3--the level of compression had little effect on how they rated the sound quality. Most important, none of the compressed music samples sounded terrible to their well-trained ears. ...
In 2001, PCWorld conducted extensive audio compression tests, using four music samples, 30 judges, and a more-controlled audio environment. Though that study didn't test whether jurors could distinguish an uncompressed clip, it did find that listeners could detect very little difference between a clip at 128 kbps and one at 256 kbps.
And tests by Stanford University music professor Jonathan Berger indicate that young people are actually coming to prefer the sound of compressed music. Berger sees an increasing preference for MP3s and believes that the students he tested like the "sizzle," or metallic sound, that the format imparts.
The bottom line from my testing seems to be this: My jury of professionals generally preferred WMA compression, but weren't able to detect much difference in files with bitrates higher than 192 kbps. In other words, even though the technology is called lossy compression, you may not be losing as much as you think.