Induction doesn't work in the line in port on devices. Induction pickups work on the mic-in, so that will probably NOT work. I honestly haveen't tried it, but I think you will need to power the induction mic to work, and that sortof defeats the purpose of using the speaker's magnetic/electronic signals to record.
By mp3 player do you mean iPod? I've been meaning to try mine to record, but I just haven't gotten the time to work with Podzilla. I'm thinking there are other ways to get an iPod to record (4th gen) but now that I have my minidisc recorder, it's been a little tough to justify the time.
All induction pickups will introduce some "noise", be it the normal induction hum, as I like to call it) or other interference. YOu'll need to clean it up regardless, however in theory, WAV should give you a better starting point, but I've seen 320 kbps MP3 clean up very nicely, and I'm using ATRAC 256 on my recordings and I think they sound great as well.