I just place the URL (no matter where it is hosted) within the mp3 tags and it works. Not sure if you edited the code in some way.
On my custom pages like this one....
Walt Disney World - Magic Kingdom Attractions .... I had to hardcode the url into the code and using this code ...
Code:
<script language="JavaScript" src="http://www.fakedomain.com/myname/audio/audio-player.js"></script>
<object type="application/x-shockwave-flash" data="http://www.fakedomain.com/myname/audio/player.swf" id="audioplayer1" height="24" width="290">
<param name="movie" value="http://www.fakedomain.com/myname/audio/player.swf">
<param name="FlashVars" value="playerID=audioplayer1&soundFile=http://www.fakedomain.com/myname/audio/music.mp3">
<param name="quality" value="high">
<param name="menu" value="false">
<param name="wmode" value="transparent">
</object>
....from this page:
http://www.macloo.com/examples/audio_player/index.html