You can get dedicated MP3 low-power decoder chips. You might have one in a fancy PC soundcard (SBLive?), but I don't think it's included in baseline AC97.
(I remember having a 486DX that could decode MP3s with the Fraunhofer player at about 95% CPU but not Winamp, which was slighly too slow to keep up)
I don't know exactly; the chipsets tend to be closed. I've seen baseband processors which have the AMR codec in hardware (adaptive multi-rate, used for GSM phone audio).
Doesn't mp3 transcoding have dedicated hardware instructions, making the job much easier?