This concerns XMPlay more than MO3, but anyway...
Get LAME (a freeware MP3 encoder) from RareWares
(you need the first bundle). Open the zip, and extract lame.exe to the same folder as xmplay.exe. Start XMPlay, go to Options and Stuff (right click the title bar) > Output, and select 'Encoder - LAME' in the Device box. If there is no such preset, go to Output > Encoders, type 'LAME' in the Encoder box, click Add, set the extension to mp3, the resolution to 24 bit and use this command line:
lame - %o -V2 -h -T --tt %1 --ta %2 --tl %3 --ty %4 --tn %5
For smaller files, try -V5 or -b128 instead of -V2, or take a look in the LAME help. The tags are probably not complete, you'll have to add them with a different program (MP3Tag
is a good one).
Select the preset as output device, click Apply, close Options and Stuff, load your MO3 as usual. Instead of playing it through your speakers, XMPlay will now feed lame.exe with the audio.
Also, the Support Site
has an article on this.