Ofcourse it varies game by game, but 99% the developers do not use just straight mp3's for the music included on their games. They do use higher quality (usually straight from the studio) audio samples and then tweak them to help fit the style or theme they are trying to convey... I like to kind of think of it as the "Bose effect" where you are taking something, and tweaking it to the point of making it "sound" better, clearer, deeper, etc... without it actually being clearer or deeper. They may tweak the bass and vocal outputs on the track to give it a louder harder hitting presentation than how the artist originally recorded it. the drawback to this of course is usually the exclusion of the full dynamic range of the recording (why I reference it as the "Bose effect")... but when you are clicking through menu's or doing other things, and the music is just a supplement, there tweaks do help to give the perception that the music is "better" than you are used to hearing it (where as it is actually just better suited to the mood the game you are playing has put you in).
Just my $.02