For starters, Sled, is right that almost any MP3 editor will internally decompress the files into WAV and then edit them. Having said that, I use GoldWave for my editing needs. It works well. Re-encoding can be a little pain as GoldWave doesn't have the best encoder.
For encoding purposes I use MusicMatch JukeBox and encode at 128kbs. Now you said that if you ripped directly to MP3 you got better quality music than when you did it yourself. Well, if you were to play the 2 files in something Winamp, you'd probably see that one of them was encoded at 96kbs, perhaps, and the other at 128/160kbs..
Now the encoding process itself needs a little explanation. The outright effect of encoding a WAV file into a MP3 file shrinks the file size dramatically. It is common to assume that a ZIP'ing sort of thing has happened, in as much as that it is true, creating a zip file and MP3 file uses 2 differnet style of encoding. With a WAV file of about 45 megs, the MP3 encoding algorithm, goes and removes all the sounds that are either too high or too low to be heard by the human ear. There are other things it does as well. Removing unwanted notes as the effect of shrinking files. You do this well enough and you end up with a file with ONLY the musical notes that you can hear..
For best quality, always encode MP3 files in atleast 128kbs, 160kbs is considered CD-Quality..but with 128kbs it's almost impossible to tell the difference. On top of that 128kbs saves you that little bit of space from 160kbs. As far as going beyond 192kbs..I'm not sure that is justified, but if you've got 30 gigs devoted to your MP3 collection, do as you please..Regards