Here are some sites to find free and legal music for downloading (in MP3 format unless otherwise specified). It may or may not be legal to burn these off on a CD. Since I am lazy, I will leave it up to you to find out. Downloads that require BitTorrent can use uTorrent for Windows or Azureus for Linux.
Music Download Sites
Jamendo - A nice site that allows you to stream the entire album to see if you like it, and download it with BitTorrent. There are some truly awful bands on here, but some of them are amazing. I really like being browsing the different bands on this site. Bands from all over the world can upload their music on this site under the Creative Commons licence. Fans have the option to make a donation directly to the artist.
Free Albums Galore - A music blog that only posts full albums that are both free and legal. They have some really great stuff here, including Machina II by The Smashing Pumpkins. You should also check out their great list of other free music sources that has many other music blogs and websites.
Free Music from FrostClick - A blog created to showcase some of the free music that can be downloaded with the FrostWire application, only you can use any software you want to download these albums.
Nugs.net Free Stash - Free jam band MP3s. Plenty of Phish, Grateful Dead, and Widespread Panic as well as some Medeski Martin and Wood, moe., String Cheese Incident, and many more. You can stream the music to your computer or download the MP3s directly.
Epitonic - This site has music from independent artists and they try to write editorials about each artists so you can find music that fits your taste.
EC Brown - Ugly page but laid out according to what type of music it is. Features categories such as Turkish, Old-Time Recordings, Homemade Instruments, and Scandinavian Folk. Nice.
1 Million Free and Legal Music Tracks - A great wiki about, you guessed it, free and legal music.
Other Free Music
Pandora.com - An extremely simple streaming music player created in Flash that starts by asking you for a song or artist you like and then starts playing similar music. You can create multiple stations for when you want to listen to different music for different moods.
free.Napster.com - Remember Napster, the file sharing program? They have since become a pay per download service. But they do have a large selection of songs that can be streamed right into your browser on demand. Great if you want to have your friend hear that one song you are talking about. They even have some whole albums you can listen to. Check out their Phish selection.