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I digitize LPs, clean up the noise, and keep them as digital files and CD-Rs. My first step is always to burn the first generation recording to a CD-RW. Not all audio CD players can play a CD-RW, but I've never met a computer CD drive that had a problem with them. When burning a CD-RW in a computer drive it's a good idea to burn it as slowly as possible.
As far as I can tell, the quality issue would be in playing back a CD-RW on audio equipment that can only marginally read it. For a computer, even if it takes a few passes to get a correct copy, you should be good.
The only other caveat I would make is that CD-RWs are not a good option for long term storage.
I agree that if I were going to do this, I'd use a "virtual CD drive." It would also have the benefit of being much faster.
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