I have uploaded ripped MP3s before and have not had any repercussions. I don't share it with anyone though, which might be where you could potentially get into trouble.
Unfortunately, once it is up on OneDrive, there isn't a very good way to actually listen to it within Windows Phone. You can play songs, but you can't have it play in the background--it will stop the music if you try to do anything else with the phone. You also can't download them to the phone from OneDrive on the phone itself.
It's a shame, because I have a lot of space on OneDrive and would love to be able to download or stream my music from there.