Your presumption that MP3s will prosper only until CDs change is a common one, but flawed. Recall that the first record companies were started for one purpose: to package and distribute musical recordings. Musicians required a record company if they wanted to get their stuff out, since only the record companies could magically convert their songs to black plastic platters that made music.

This relationship has existed for as long as record companies have existed (much to the pleasure of those in the record label and manufacturing industry). In order for an artist to go anywhere, you really had hope to get signed by the magical record company who would make you a star, thanks to these magical powers of production and widespread distribution. (Sure, you could go indie and record your own casette tapes, but eventually everyone needs some sort of record deal.)

That is, that relationship has held true until now. The internet combined with digital encoding technology advances means both reliable production and widespread distribution of music is now incredibly easy, and free of cost or controlling entity. These things have been the main reasons record companies have persisted (in addition to hefty bank accounts), and now they are no longer needed.

Now, realize I am not saying we can stop buying CDs tomorrow; no one has yet figured out how to take advantage of the internet to successfully make use of these capabilities to the benefit of the artist -- pirates have been the most successful, and commercial success with using the internet as a physical distribution paradigm has been limited (ex: Ice Cube, I think...)

However, the notion that a new "encrypted cd" and player might be developed is ridiculous. I'd liken it to a blacksmith seeing the first cars come out and say "I know! I'll make a better horseshoe, that'll end all this talk of automobiles!" In reality, an all digital age of music is completely possible with technology available today, and I don't see it being that far off until this is the reality.

Now... relevant to encryption, here is my take. As with any good technology, this part was inevitable. However, it irritates me because it could very easily derail a colossal shift in the music industry: imagine a world where all music is available at high quality for free. Artists make money from tours, and from music download houses that pay them small royalties every time the song is downloaded. These clearinghouses could make money by memberships or other clever techniques. A pipe dream, probably... but with encryption, it will surely stifle music being free. Free music is a scenario that the industry badly needs to get some balls and consider -- most artists that support Napster have already done this, but they are a sad minority.

Cheers,
Mike