HI
1) Spotify quality is pretty good. i did an AB listening test in the studio against a purchased cd of a track and found prescious little difference audibly, although the level wasnt as hot.
If youre happy to even mention the word Mp3 which is by definition, a seriously compressed lossy format, the I d not be worrying about it.
BUT if you do record off the spotify stream, dont save it as an mp3 for heavens sake. Uncompressed wav or aiff!
2) Personally I can overook the copyright issues you mention, but I suspect that the artists/ record companies and their lawers may not be so understanding. Just be aware that if you infringe the copyright, and THEN get caught, youll have to pay whatever they ask for in fees, not a retail cost of the cd or license fee. I know this wont make you go legal, but you need to be aware.
Peter