http://www.schoenfeld.de/inside/Inside_MP3AT64.txt probably answers most of your questions.
The host just provides a MP3 stream and the MAS ASIC takes care of the rest. When it comes to software, I'm as uninformed as you are (familiar with the concept, not the particular hardware).
With C64 support, this could be a candidate for the "Blue Monday on a Floppy" project, although you'd need something like a SFD-1001 to be vintage on the storage end.
