I agree with you...using the System Mixer in MusicMatch is probably not the best way to do it. I was just offering a solution with the software. I'm sure there's any number of programs that would do a better job.
Personally, I'd probably just use a recording program like Cool Edit. Only problem is that most of those programs won't do the MP3 conversion on the fly, so you'd have to record the entire thing into a .wav (which I've done before, actually). Just make sure you have lots of room on your hard drive.
There are other programs, such as TotalRecorder, which will do the conversion on the fly. But, I think it goes through the system mixer as well.
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Scott
MKIIa 10GB - 2.0b11 w/Hijack
MKIIa 60GB - 2.0 final w/Hijack