Legally, you need to own the Audio CDs you are using music from. If you borrow a friends, you don't own it. You have not paid for the right to use it.
Legally, it is illegal for your friend to loan you their discs knowing you are going to copy them.
When you start with someone elses copyrighted work, and modify it, it does not make it your "copywriteable work" now. If it is public domain music, you're OK.
Can you use it safely? Probably, but if you do a lot of work in public, if you are found out (a competitor will eventually report you to someone), you can lose all your computers, sound gear and discs.
Is it worth it, or would you rather sleep at night....
