There is an upgrade available to let the NW-HD1 play MP3 native (after importing).
Only, AFAIK, both SQ and batterylife take a hit, so I never took the trouble.
I got the NW-HD1 for about a year now, and I love it.
There are those here who say it's SQ is not very good, but those people listen to amplifiers and expensive headphones.
Use it as its meant to be used, put it in your pocket, use a fine headphone (I prefer the Shure E3, with some EQ) and the thing is really great!
Really pleasant nonfatiguing SQ, detailed and spatial with silky treble, compact, long batterylife, durable (not a single scratch, though I just through it in my pocket or bag without a case) and stylish (slightly better looking then NW-HD3, and a magnesium cases, as opposed to the HD3 alluminium casing).
Before this I had a mini, couldn't stand it! Flat cold sound (appearantly there is a severe bassrollof on the phone-out that causes this) and I became a neurotic batterylevelwatcher, charging every day, as opposed to once a week at most now.
So if you don't mind Atrac, I think the NW-HD1 is a perfect choice (but do backup your library in SS) and it's the best walkman I ever had.