Portable MP3 question

No. An mp3 is a compressed format, which means that some (or a lot) of the data needed to reproduce the sound is not present. That being said, if you encode your mp3s at a high enough bit rate (and thus higher quality) you may not be able to tell a whole lot of difference, particularly considering that car audio is generally not state of the art, esp. compared to the quiet listening room you may be in at home.

I play mp3s through my home stereo sometimes, and the quality is certainly acceptable. However, the sound is also degraded somewhat by the fact that I'm (and you will be) running the headphone out to the line in of my stereo (impedance mismatch?).

The signal to noise doesn't seem to suffer, from my experience.

After you throw in the road and engine noise, none of the impedance mismatches or MP3 compression artefact is going to matter. From my own experience listening to an MP3 player exactly like OP does, I can tell that there is no audible difference whatsoever between the CD and the MP3. Rock and audio books are absolutely fine; classic music will suffer from the road noise.