Just to expand on this a bit,
The full list of supported formats. This is in order from highest to lowest priority (ie: if more than one of these exist, NL will use the first):
- OGG
- WAV
- AIFF
- AIF
- MP3
- MO3
- IT
- MOD
- XM
- S3M
- MTM
- UMX
For music, all of the above are supported. For sound effects, only the first 5 (OGG to MP3) are supported. Seamless looping is supported with OGG (this is done the same way RPG Maker handles it, there's plenty of tutorials for that out there, look up "how to make OGG loop in RPG Maker" or something along those lines), and with all tracker-based formats (these formats have native support for this); other formats only support the "upon reaching the end, go back to the start" type of looping.
Note that extensions are ignored in level files (and "music.nxmi" files). It doesn't matter if you type "track01", or "track01.mod", or "track01.ogg", etc. All of these will just be treated as if you typed "track01", and NL will look for each supported extension in the order mentioned above.
MIDI is
not supported. It
has been requested once but is not in particularly high demand. MIDI files can only be used currently by first converting them to another supported format (IT is the easiest); this isn't too tricky to do, the majority of custom musics in my packs are MIDI to IT conversions.