The 2004 XM stereo doesn't play MP3.

Most re-writeable media will work. Problem is, RW's are simply less
reflective than pressed CD's. When a diode laser gets use, the output
declines over time. Eventually the player may not play any CD-RW's.
That's probably why Honda doesn't guarantee it.

A laser putting out 50% of it's original output (after several years of
use) may be sufficient for a pressed CD, but won't work for an RW, for
example. The amount of light bouncing back to the sensor lens simply
becomes inadequate.