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Not sure what happened there - you're sure you chose and confirmed to use 'MP3 Encoder', yea?
If I were you I'd check that / import again.
Also there's the option to select files and in the menu bar go file > convert > create mp3 version or something similar for files you already have and want to convert to mp3).
Ok, I did that - saved as MP3, then I copied the album onto the USB stick I want to use, and every file ends with .m4a, which is not what I wanted. What happened - are Apple simply fucking with me?