These things are always a matter of your listening preferences and what you have trained yourself to hear. I've got an X1 with the stock stereo and most of my listening has been to high bit rate MP3s on a USB stick. If I put on my audiophile hat I can hear the tell-tale signs of compressed music such as smeared and hissy sounding cymbals. But for everyday listening and just enjoying the music and the drive it is decent enough sounding.
My personal feeling is that with any music system you should always opt for the highest resolution source material. The exception is where you need to trade off resolution for storage space. I recognize that as an audiophile I'm not representative of the general car buying public. But I think it is a shame that a company like BMW is willing to sell you an upgraded stereo are near or above $1K and then restricts their D/A capabilities to lossy audio formats, the only exception being WAV which they have to support to play CDs. Come on, support at least Apple Lossless if not FLAC at 16 bits. If they support 24 bit playback even better.
Once I get around to doing some comparisons if I find the difference between MP3 playback and what I can get out of my iPhone with Apple Lossless to be too broad I'll have to look at buying an iPod Classic to keep in the car just to be able to play the most possible music at full 16 bit resolution.