www.magnatune.com is another site that does something similar, although they select their artists (and thus on average quality is much higher). There you can pay with a credit card and you can decide if you want a CD burned and shipped to you, or just download the bits (you get to choose how much to pay and 50% goes to the artist, which compared to 2-7% from record labels is a big difference). Music is not released under CC, licenses (IIRC) but I've found their licensing terms to be quite reasonable.
Actually, all of Magnatunes music is free for non-commercial use and licensed under CC-BY-NC-SA. See http://www.magnatune.com/info/license (at the bottom of the page).
/Stian