Wow, these are large questions. I have some short answers.
For mp3's you do get better results as you move up in bit rate, but there are diminishing returns. You've noted the difference between 96 & 128 kbps, and there's a difference between 128 & 160 kbps, just not as great.
With better hardware (player, receiver, speakers, subs) the difference in bit rate becomes more pronounced, but there are diminishing returns here too, as you invest in better hardware.
Most people, even with good hardware, can't tell the difference in bit rates once you get up to 256 kbps. (in a blind test).
For myself, I rip CD's using LAME with the v0 option, which gives a VBR about 245 kbps.
How much improvement can you expect? It depends.....