This CD won't be sold. I don't see how it infringes on anyone's copyright. It's not commercial use.
I'm not sure that's true. I'm no expert, but in
The Indie Band Survival Guide, it states, "When you record a cover song, you need to obtain a mechanical license from the author/publisher and pay the requisite fees... As outlined above, it doesn't matter if a song is given away for free or used as a promo, a copy is a copy, and to avoid an infringement claim, you're supposed to obtain a license." (page 194)
I finally found the section referred to in this quote - it's on page 164, and states, "Recording someone else's song requires a license. This license is needed even if you're just giving the cover song away for free."
Whether someone would ever crack down on the Outpost is another matter, but I think we should be aware that including covers is problematic. I hate to be the bearer of bad news!