Midi music is my pick, because it's more ambient and really adds to the creepy atmosphere of the game. RB audio can get obnoxious at times and destroys the atmosphere of the game.
Also, there are more tracks in midi than in mp3 OST. There are I think only 5-6 tracks in RB OST.

There are eight audio tracks.

There are ups and downs of both, depending on how they are used, Dark Carnival isn't the same with MIDI. You can always edit your Blood.ini file to comment out the OST if you prefer the MIDI in places.

I personally prefer the redbook audio, it just sounds right to me when I play the game.

How do you switch between the two?

There are a few ways. You can change the CD mount line in dosboxBlood-single.conf, that reads:
imgmount D game.inst -t iso game.inst, to imgmount D game.inst -t iso game.gog

This will eliminate the audio tracks all together; as it would if you played Blood without the CD in the CD tray.

But if you like some levels with the MIDI, and some levels with the audio tracks, you can change the entries in Blood.ini. For instance if you want to play the MIDI for wrong side of the tracks you can just comment out the Track line with the semi-colorn (;) like so:

[e1m2]
Title = Wrong Side of the Tracks
Author = Craig Hubbard [Croweater]
Song = cblood10
;Track = 8

Go to the BLood folder in Gog games. Drag and drop the Blood.exe (referred to as application) into DosBox and you will get midi music, but the resolution will be stretched (good or bad).
Also, If you guys want the MP3 music to repeat , than download the custom DosBox (http://www.gog.com/forum/blood_series/a_custom_dosbox_build_to_improve_the_support_for_blood) and replace this Dosbox application with the one in the Blood folder. That's it.

Not really, it's a matter of mounting .bin through .cue image in case of GOG version the names for cue are .ins and for .bin are .gog

[autoexec]
# Lines in this section will be run at startup.

@ECHO OFF
mount C ".."
c:
imgmount D game.ins -t iso
cls
blood.exe
exit

Is for CD Sountrack

[autoexec]
# Lines in this section will be run at startup.

@ECHO OFF
mount C ".."
c:
imgmount D game.gog -t iso
cls
blood.exe
exit

is for midi. Midi plays when cd tracks or cd itself isn't detected. Without .cue, mounting, only .bin it will switch automatically into midi.

This is what game.ins contain:

FILE "game.gog" BINARY
TRACK 01 MODE1/2352
INDEX 01 00:00:00
FILE "blood02.ogg" MP3
TRACK 02 AUDIO
INDEX 01 00:00:00
FILE "blood03.ogg" MP3
TRACK 03 AUDIO
INDEX 01 00:00:00
FILE "blood04.ogg" MP3
TRACK 04 AUDIO
INDEX 01 00:00:00
FILE "blood05.ogg" MP3
TRACK 05 AUDIO
INDEX 01 00:00:00
FILE "blood06.ogg" MP3
TRACK 06 AUDIO
INDEX 01 00:00:00
FILE "blood07.ogg" MP3
TRACK 07 AUDIO
INDEX 01 00:00:00
FILE "blood08.ogg" MP3
TRACK 08 AUDIO
INDEX 01 00:00:00
FILE "blood09.ogg" MP3
TRACK 09 AUDIO
INDEX 01 00:00:00

Not exactly what?

Didn't get what you are trying to prove. sorry.

He's saying that when you launch Blood that way, you are doing so with minimal configuration settings. For instance you probably get the message: LOW MEMORY WARNING: Blood requires 23mb of free memory. DOSBox will run without mounting the audio tracks because hasn't been told to look for them. It's also running without properly allocated memory, without tailored video and audio settings, without network support, etc. All it knows is, run Blood.exe with my default settings and pray for the best.

You can manually change the memory size through Dosbox configuration. Well, I typically use this method to get the midi soundtrack playing, so having audio tracks (if you are referring to CD audio) is not a problem. But I will try editing the gog file to get the midi running on the gog version.
Tried it, and the conf editing method works well to get the midi.