Ant wrote:

Or is it not possible?

In the sound dialog to assign sound files to system events, the only
choice in the format drop-down listbox is WAV. That's what Microsoft
wants to use. WAV is the primary format used in Windows for raw audio
(usually uncompressed). That audio format was created by Microsoft
decades ago.

If you want to try a workaround, you could test if changing the audio
file designated by a registry entry would let you pick something other
than a .wav file.

HKEY_CURRENT_USER\AppEvents\Schemes\Apps

You'll find the sound event names listed as registry subkeys under
there. Under each sound event, there is a .Current registry key for
what audio file is currently assigned to that sound event. See if
replacing the .wav file (or blank entry if none assigned) to a .mp3 file
gets what you want.

Whatever handler that Windows uses to play the sound events may only
support .wav format.