I started taping with an MZ-R70. Tried recording in mono for the extra record time once... If the recording is for your personal enjoyment, and you don't mind the lack of stereo imaging, this can be an okay solution. However, unless there's something spectacular about the show and you end up being the only one that gets a recording, it's unlikely that many people will be interested in trading/downloading it. Then again, the ATRAC3 compression in MD may also turn people away.
As for setting levels, I would set them before the show started and just hope for the best. Aim low, as it's better to have low levels (which can be boosted in post) than brickwalling (which simply ruins the recording). Try and go to an open taping band (even if you don't care for the music) and play with your levels there. This will give you some ideas on where to set them.
Battery powered mic > line in should work fine. Just beware that the battery powered mics from Sony tend to be 100hz - 15kHz instead of the full 20hz-20kHz range. This is good, in that it is less likely to overload your MD with BASS, but bad in that you loose a portion of the sound. To hear the difference, listen to my recording with a sony ECM-737 batt powered mic > MZ-RH1 against Jankas recording of the same show, from the same location, with much better gear.
Janka's AKGs
http://www.archive.org/details/jwpp2007-10-06.Flac16The Sony ECM-737
http://www.archive.org/details/jwpp2007-10-06.ats.flac16