If it is necessary for you to convert files into MP3 format, then you will need to install the LAME MP3 Framework and the LAME QuickTime MP3 Export Component. These will make it possible for QuickTime to export MP3 files, a benefit which will be available to all applications which use QuickTime.
Download the LAME MP3 Framework and QuickTime Export Component.
The above package contains:
Once these two items have been successfully installed, the option Convert Incompatible Files (to MP3) will become available in the PhatMac General Preferences. It will not be necessary to reboot the computer, however you will need to restart PhatMac.
Be sure to check out Lynn's MP3 development page.