Copyright

First let me say if you want to understand copyright completely you will need a law degree and more but the following is an understanding of the basic principles as I see them.
I am not an expert and nothing I say here could be used in court but if you follow these principles you should have no problems with copyright.
As with anything to do with law err on the side of caution.
Copyright is a pretty straightforward concept made complicated by the introduction of third parties and the fact that rights can be sold or transferred to heirs etc.

Joe Composer writes a piece of music called "My Tune"	"My Tune" Copyright Joe Composer
Bob's Band plays the tune. They must have permission from Joe to do so.	"My Tune" Played by Bob's Band Composed by Joe Composer. Copyright Joe Composer.
Rick's Recordings records Bob's Band playing "My Tune". They must have permission of both Bob's Band and Joe Composer.	"My Tune" by Bob's Band Copyright Bob's Band Music copyright Joe Composer
Rick's Recordings buys the rights for this recording from Bob's Band	"My Tune" by Bob's Band Copyright Rick's Recordings Music Copyright Joe Composer
Radio picks up the recording They only need permission of Rick's Recordings to air it since Rick's Recordings have already made arrangements with Bob's Band and Joe Composer.	"My Tune" by Bob's Band Copyright Rick's Recordings Music Copyright Joe Composer

Copyright rights can be bought and sold so it would have been possible for Bob's Band to buy the rights leaving Joe Composer with no rights to this tune.

With the previous scenario in mind.
You may use the music in your own home by playing it on the piano for instance.
You may even play it in your local pub or community center although technically it is a copyright violation it has never been seen as such as far as I know.
Once you cross the line into entertainer ( I am not sure where that fine line is ) you would have to get permission from Joe Composer to play his tune.
Now we come to the Internet.
If I hear "My Tune" on the radio and decide to sequence it as a Midi I must get Joe Composer's permission.
If you hear my midi version of "My Tune" you must have my permission to use it on your web page.
If you buy the CD with "My Tune" on it you may NOT convert it into a wave or MP3 and use it on your web page without permission from Rick's Recordings and you will not get that.
There has been much discussion about relaxing of laws governing midi music on the Internet yet no action has been taken.
Meanwhile ordinary people are being sued for using midis on private sites.
It is definitely illegal to use actual recordings of popular music from CDs and will remain so.
The problem with the midi is that it is not of a quality that will make it on to a CD so it is bound to the Internet.
Many feel that putting it on their web page is rather like playing it in their local pub where only a few people hear it.
I can see the point but without control a midi migrates to more and more web sites which is not the case in a local pub.
Another point which seems to escape the majority of people is that sequencing a midi takes as much time as recording a CD. So why should the sequencer have less recognition than Bob's Band.
The sequencer has the ability to embed copyright information in the file but many do not and the reason is simple.
If you are found using "My Tune" and I sequenced it illegally without embedded information you are completely liable and I deny any knowledge.
Summary
You may NOT use any original recordings from CDs in either wave or MP3.
You must at least know who sequenced the midi you wish to use.
If the music was published after 1922 ( not public domain ) the sequencer must have obtained permission from the composer.
At the moment these are the rules and as a sequencer I can tell you that even finding who has copyright to some of the current hits let alone contacting them for permission is almost impossible and every one I have contacted has turned me down flat.
If I hear of any changes I will post them on this page but I don't see anything happening soon.