Applications Needed:
Saturn MP3-WAV Converter
Sega CUE Maker
Step 1: Converting the MP3s to WAVs:
First extract the ISO/MP3 files into a folder by themselves. Next highlight the MP3s, right click, and select Convert to WAV. When it is through converting, delete the MP3s, and move the WAVs out of the "Converted Audio Files" folder and put them where the MP3s were.
Step 2: Making a CUE Sheet.
Open up Sega Cue Maker. Navigate to the folder where your .iso and .wav files are now. Click the "Generate CUE" button, you will see the cue sheet appear in the program window.
Now save the CUE to the same folder.
With the .CUE file, you can mount it with Daemon.
BTW, you can get the Sega Cue maker here:
http://www.racketboy.com/downloads/sega-cue-maker.htm
I don't know where to get the Saturn MP3-WAV Converter, but any program that converts .mp3 to .wav will work. There's a nice and free one here:
http://www.dbpoweramp.com/dmc.htm
ENJOY!