I would like to use a PC as a rent-able karaoke machine.
Given the files will be stored as mp3s, how would I copy protect them? I was thinking of encrypting them and getting a plugin for a music player to decrypt them.
Rather than worry about securing the software in this case, you should focus on the hardware. Remove all the network ports, USB ports, floppy drives, and anything else that can be used to copy files. Physically lock the chassis to prevent anyone from just reaching in and ripping out the hard drive.
Chances are, for a karaoke machine, there'd be little need for anything other than a microphone input, an audio and possibly video output, and some sort of interface. Trim down to the necessities.
Basically, make it so they have no method of copying the files out in the first place. If they're savvy and persistent enough to break into a locked-down chassis for a hard drive full of karaoke music, while keeping it undamaged enough that you'll not charge them for hardware repair/replacement, they'd be getting the music one way or another regardless.
Don't forget, no matter how secure you make the mp3s, there'll always be the possibility of someone jacking into the audio output itself and recording their own files. Best you can hope for is to be frustrating enough that copying the mp3s themselves is just not worth the effort.
And, of course, you can always add encryption for that extra level of inconvenience. But it shouldn't be your first and only line of defense.
MP3Guard MP3 Protection will encrypt your mp3 files. This includes an MP3 Player for playing the MP3 files. Users cannot copy your files.
MP3Guard MP3 Protection is shareware ($19.95), try before you buy.
Not a PC, but you may find this interesting:
For use in scale models, consoles, shopping malls (background music) and kiosk applications, we designed a solid-state MP3 player with a programmable "control" and an interface to external electronics. The H0420 MP3 player produces high quality audio, that it streams from a CompactFlash disk (types 1 and 2).
Then use the MP3Crypt utility to encrypt MP3 tracks, for playback on a H0420 or H0430 MP3 player/controller. The H04x0 series use a strong encryption scheme with a 128-bit key. This key is hard-coded in the device; when ordering a series of MP3 players, a customer may request a unique device key for that series.