This is either genius, or laziness.
I'd go with genius here.
Danger Mouse and Sparklehorse's Mark Linkous actually made an album, Dark Night of the Soul, and it's good. The entire thing is available streaming from NPR. Or you can get it from any number of torrent sites or music sharing forums. Either way, if you bought the blank CD-R, you paid for the license to the music. You are legally allowed to obtain the music by any means you want.
The Flaming Lips (or at least Wayne Cohen) show up on the album, as well as Frank Black (from the Pixies), Iggy Pop, Suzanne Vega and a bunch of others.
And you get a killer booklet (100+ pages) of photos by David Lynch if you buy the CD-R.