As I understand it, iTunes won’t let you make an MP3 CD from encrypted AAC files. It will let you burn them to CD (subject to some dumb restrictions), and then you can use iTunes to rip them back as MP3s or open AACs.
At the risk of stating the obvious, that’s because an MP3 CD has, well, MP3s, and AAC files are not MP3 files. 
It is, of course, possible to transcode files from one format to another. iTunes has an AAC decrypter/decoder and an MP3 encoder; there’s no reason they couldn’t be put together. It’s just one step more than burning a regular audio CD.
With a generational loss in quality, natch.
If Apple were to add the ability to transcode AACs into MP3s for burning on MP3 CDs, I can just imagine customer support getting a lot of user complaints about the “crappy sound” on their newly-burned MP3 CDs.
Er, sorry, I guess I should have said “without going through the unnecessary burning process and using a CD blank.” A CDRW would obviously be better, but still not ideal. But then, would CDRW’s even work and still be rewritable? I assume iTunes wants you to burn redbook audio CD’s, and that CDRW doesn’t work with that.
Well, you’d need to use a higher bitrate than the original AAC, but this isn’t much of a problem. In fact, iTunes already lets you convert unrestricted AAC files to MP3s by right-clicking on them (I assume the Mac version also has this feature somewhere), and doesn’t offer any warnings about quality loss. I converted two 128kbps AACs to 192kbps MP3s last night and didn’t notice any difference in quality. The only reason iTunes doesn’t do the same with restricted tracks, as far as I can tell, is to make life slightly more frustrating for iTMS customers who don’t own iPods.
Yes, you can burn audio tracks to CD-RW media. You can’t expect them to play in most CD players, but you only need to be able to read them back with your own CD-RW drive.
Well, of course you can burn the files to a CD-RW, but the question is whether or not iTunes’ “burn a music CD” feature will let you do it. There is a big difference between a CD in redbook audio format and a CDRW with files on it.
Maybe I wasn’t clear… you can use iTunes to burn Red Book audio tracks to a CD-RW, then rip them back as MP3s or open AACs. I’ve done it myself.
You can put anything on a CD-RW that you can put on a CD-R: data, audio, VCD/SVCD, etc. The only issue is whether your player can read CD-RW discs (which aren’t as reflective as CD-R), but of course that isn’t a problem when you’re ripping the tracks with the same drive you used to burn the disc.
I keep a rewritable CD around for just that purpose alone. I suppose eventually it will get wonky from too many erases and I’ll replace it with another.
Any tune I buy from iTunes Music Store is put in a special folder and when I get enough of them I burn a CD then immediately rip them all back as hi-quality MP3s.
I just use DeDRMS, then convert the unrestricted tracks to MP3s with iTunes. It saves wear on my CD-RWs, which I need for getting songs in useful formats into my car and onto airplanes. It may not be technically legal, but the result is exactly the same as the practice Apple prefers, and IMO it’s ridiculous to make everyone go through a pointless intermediate step.