Daemon Tools can simulate redbook audio - as you mention you must convert the MP3s to WAV first, and then update the CUE file with a find/replace ".mp3" to ".wav". Then you just open the CUE file with Daemon Tools and it will locate the BIN CD image and tracks and simulate the CD ROM drive.

Nero Burning ROM format (*.NRG) could include several tracks if the virtual writer was used.
The format can be read by various virtual CD-ROM drive(r)s.
https://en.wikipedia.org/wiki/NRG_(file_format)

Thanks, people! Now that I searched for "daemon tools audio cd" and related terms, I found a bunch of useful stuff.

I did create a cue/bin image (Realms of Arkania: Blade of Destiny, 1992) that worked fine on my Win7 machine. However, on my 486 laptop the game freezes right after setting up sound when it's about to launch the intro. I also noticed that Windows 95C doesn't come with the CD audio player... I guess since the machine doesn't have a built in cd-rom drive. Anyway, I think I'll test some of the other virtual drive software available and maybe a different game to make sure the images are working and the issue is not somewhere else.

Except Nero format is there any other image format with is lossless for cue+bin files? Most annoying for me that that 2 have files instead of 1.. BTW are Nero images supported by Dosbox?

Almost all CD formats do audio; ISO is the exception as a very simple format. BIN/CUE, CCD, MDF/MDS, BWI, MDX, etc. MDX is the single file version of MDF/MDS, for your OCD needs. NRG is probably fine too, but it won't duplicate copy protections like better proprietary formats.

DOSBox mounts ISO and BIN/CUE formats; I believe all the rest you need to mount externally.

There are any freeware tools to create BWI, MDX,CCD on Windows?

I tried to convert cue+bin to iso, i know that is will lose audio tracks, but target file is also because of that much smaller.. Is there any experience if games are ok, if cd tracks are removed?
Im asking also because AFAIK there is no pure Dos virtual drive which is supporting anything else that iso.. and would be nice to use *.iso for game which are requiring cds.. without real cds exchange hassle..

With a little search engine effort you'll find ImgBurn, and maybe a lot more answered questions that don't lead to habitually bumping up old vogons threads as if they were still active discussions

Well, already i tried ImgBurn it got stuck for minutes and nothing with iso which i have tried, if i remember correctly it was Carmageddon.

Otherwise: Point noted, i thing that i lesser evil use old related thread that create one with same topic, but yeah im lazy pig and sometimes in dont give seaching enough time..