ATRAC compression works by eliminating frequencies that the human ear is incapable of hearing. I have never been able to discern the difference between a first-generation ATRAC version 3 or later recording and the original CD source material.
ATRAC is really not as simple as Ange Hamm's post would indicate.
MP3 can be used at very high bitrates with low compression, and I've read that these types of MP3 files sound very close to CD. ATRAC has been in the past fixed bitrate with compression 5:1. Post version 3.5 ATRAC is very good, almost identical to the original. Nowadays there is MDLP which is a lower bitrate ATRAC that I've read degrades the sound similar to most of the MP3s you find.
I did quite a bit of comparing ATRAC(4) vs. MP3 vs. CD. Both ATRAC and MP3 cause considerable degradation in sound, but ATRAC seems to degrade less offensively (for lack of a better word).
ATRAC loses depth of soundstage and body. The frequency extremes are also rolled of a little. It's still relatively smooth, though.
MP3 seems to add more grain, even at high bitrates and loses frequency extremes as well.
This of course all depends on your playback system. I did this comparison by piping everything through my Adcom pre/Rotel power/Mirage speakers. If you're just listening through some computer speakers or cheap headphones, the differences aren't that apparent.
The listening tests I did were mostly with 128Kbps MP3s which could easily have been the reason I thought they were more grainy. 128K was the most popular rate at the time I did the test.
Was the rest of the sound (imaging, soundstage depth/width) just as good on the 320K MP3s?