Flash is a fantastic tool for both programming and multimedia. I think what you were trying to say was "Flash's embedded audio encoding sounds awful at low bitrates" but then again so does everything else. Lucky for you, the Flash player is just linking to an MP3 file, whose location is readily available.
As for your incorrect assertions on file types, since the preview just being served via a web server, all file types are free, providing you have a player for them. Outside of the Apple community, MP4 support is not yet as prevalent as MP3, so I would argue MP3 is the choice format. Streaming using the MMS protocol requires a Windows server, but hosting the files for HTTP download (as is being done with the album preview) can be done with any server with no charge (other than bandwidth costs).
Don't mean to start a nerd war, just making sure facts are straight!