I prefer CDs, as I like the tactile and visual experience of opening up the case, looking through the booklet, reading the lyrics, etc. In fact, If I'm at the store trying to decide between two CDs I want to buy, one of the most important features for me is how thick the CD booklet seems to be (by looking at it through the bottom edge of the case).
As far as mp3s go, I tend to think that under the right circumstances, they can sound as good as CDs if you're just passively listening to it. I wouldn't want to listen to more atmospheric music as mp3s (things that require a more active listen for me would be post-rock [Mogwai, Sigur Ros, Godspeed You Black Emperor], certain electronic artists [Boards Of Canada and Brian Eno especially], and other artists that incorporate higher than hi-fi elements in their music [Radiohead's the only band I can think of right now]). I don't mind mp3s for lo-fi stuff (Pavement, The Microphones, Heavy Vegetable) from an aural standpoint, but I do prefer CDs, as I said above, because of the whole experience, and also because I feel a need to own the things I like and support the people who create them.
I recently started the fairly large project of ripping all my CDs into mp3s so that when I do get a hardware mp3 player I will be able to fill it with music as soon as I open the box. I'm using EAC (alot of my CDs are incredibly scratched) to rip them, and LAME to encode the WAVs as mp3s (using the r3mix settings for 192kbps VBR quality). I am planning on testing ogg against mp3 once I get to my Kid A CD.