only if the original encoding is distorted. Beyond that, both mp3 and wav will distort at the same point on the same system (assuming both are encoded at the same volume)
 
Just answering my own question now that i have the car. The USB stick does not play WAV files, will play MP3, AAC and WMA. Although does not play the WMA lossless type.

I think AAC sounds the best so will use them instead of WAV, at least i can get my entire music collection on just 8 GB, Besides the sound system isn't of good enough quality to tell the difference between coded music and lossless music. Unlike my 2600 w RMS PA system where the difference is very noticable.
 
Just answering my own question now that i have the car. The USB stick does not play WAV files, will play MP3, AAC and WMA. Although does not play the WMA lossless type.

I think AAC sounds the best so will use them instead of WAV, at least i can get my entire music collection on just 8 GB, Besides the sound system isn't of good enough quality to tell the difference between coded music and lossless music. Unlike my 2600 w RMS PA system where the difference is very noticable.

Also just to add for future reference if anyone's looking - it doesn't play protected AAC files from a memory stick i.e. those bought from the iTunes store before they removed DRM