Last week, we learned that struggling music download service Napster will be raising prices on its subscription service for the first time in four years. Today, the company has announced that they will begin offering MP3 downloads in the second quarter of this year, allowing customers to play their music on more devices, including iPods.

With all four of the record labels now offering DRM-free music that can be played on most any device, competitors to iTunes such as Napster and Amazon now have at least a fighting chance by being able to sell music that works on the ubiquitous iPod.

For Napster, the hope is obviously that offering MP3s will lead to more downloads, which, the company charges 99 each cents for on top of their unlimited streaming plan that now costs $12.95/mo. As noted in our coverage last week, Napster has enough cash to last about 18 more months at its current burn rate, so short of raising more capital, the company needs to begin pulling in more revenue through music sales.

MP3s are a step in the right direction, and with 750,000 subscribers according to Reuters, the company has a substantial user base to upsell which might help them turn things around. However, competition is fierce, with Amazon already offering an extensive catalog of DRM-free music in its digital music store.