So after researching my options, I finally decided to re-rip my music CD's using Exact Audio Copy and Accurip into FLAC audio files. If you want to read more about lossless audio, I suggest starting at HydrogenAudio wiki. Another interesting read is the Lossless Audio Blog. It seems like EAC is the top choice in audiophile circles.
In a nutshell:
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Lossy audio formats aren't good enough for playback on a decent stereo
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WMA Lossless and Apple Lossless are proprietary
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FLAC is gathering pretty wide support and can easily be converted to other formats
There's several lossless audio formats and it doesn't matter too much what you choose since you can theoretically always convert to another lossless format. You just gotta make sure the tags transfer ok and there's no issue with gapless support.
Some good things about FLAC:
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preserves gapless playback
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good number of tagging fields
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supports high bit rates and multi-channel sound
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decoding is lightweight and doesn't require an FPU
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supports
ReplayGain for nondestructive leveling of volume
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you can rip about 3 albums per gigabyte
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it's open source and free
I was also fed up with Microsoft Media Player. I switched to foobar2000 for a while but it's a bit arcane. I find myself using MediaMonkey more and more. Looks good, sounds good and easy to use.
For tagging, I started off using The GodFather which at first seemed very powerful but I didn't get on with the UI. I find MP3Tag to be much more straighforward and does what I need.
I had some WAV and WMA Lossless files kicking around but I easily converted them to FLAC using the dBpowerAMP Music Converter.
For CD covers, I'm finding it's easy enough just to copy the large versions from the Amazon website.