AFAIK Albumwrap doesn't (re)encode the mp3 files in any way, it simply takes a number of individual mp3 files and compiles them into a single file can that can played as a normal mp3, and further allows extraction back to the original individual files.
Just try a search for _ALBW to see the popularity of the album wrapped files. From my own experience using them they've been very handy, being able to simply select a single wrapped mp3 for download and unwrap when the download completes, ending up with an entire album where all the individual mp3s usually originate from the same source/ripper, unlike many of the mix an matched mp3 albums you tend to see knocking about.
As a note though, not all the albumwrapped files like extracting, I think sometimes users that don't know what 'ALBW' and Albumwrap means modify the ID3 tags, causing the wrap to fail (so it seems), still, the majority extract without any problems.
The extractor is free btw...
http://www.infamus.com/albumwrap/extractor.html
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