AAC, AIFF, Lossless, MP3

I agree with Tvad that, if you are taking the sound from the earphone out of the ipod, you likely won't hear much of a difference b/w lossless and a 320VBR. On the other hand, if you take the sound from the line out (which makes a HUGE difference) and if you have high quality cables, headphone amp, and earphones, you will definately hear the difference and you will want less compression than any MP3 codec will provide -- i find that anything other than lossless is a disappointment. One thing I do to preserve space is to selectively synch the music on my computer so that not everything goes to the ipod all the time (e.g., some of those 80s hairbands are in low enough rotation at this point that i don't feel i am losing anything by keeping them off the ipod).

there are a few lossless codecs that are actually slightly more compressed than Apple - such as FLAC -- that i believe ipod will suport. the space savings won't be major, but may give you a few more discs on 8GB of memory.

if you haven't checked it out yet, i suggest you visit www.head-fi.org. you will find out all you ever wanted to know and more about the world of portable music.

Portugal11: What you are proposing is very cumbersome, but certainly possible. You will want to make sure that you have configured itunes to selectively synch to your ipod. the best way is probably to specify that itunes only synch "checked" files. Then you could make sure that only the MP3 files have been checked in your music library.

As for the import settings. i highly recommend 320VBR with Highest as the setting for quality. You find these in the Preferences tab. The other settings for importing can be left "auto" (which i believe is the default).

All of this advice is premised on the thought that you will be using the line out with upgraded earphones and an external amplifier. If, on the other hand, you are simply using the stock earbuds that come with the ipod run from the earphone output the, IMHO, it doesn't much matter what settings you use b/c it will all sound like crap anyways. Again, that's just my opinion.

true enough you cant specify the bitrate in vbr (because, by definition, it is variable) bit if you set itunes at vbr highest quality you can approach 320 avg bit rate. i actually prefer using EAC with LAME or WAVPAC to get best results.

Cwlondon: Here, here.

The best solution that i have been able to discern so far is: (1) hard drive to external adaptor (e.g., Trends Audio UD-10 or Empirical Off Ramp Turbo 2 via USB, (2) external adaptor to DAC via your preference of digital cable (both adaptors mentioned above come in different flavors; UD-10 provides multiple outputs), and so on through you system.

I know of no way to utilize WAV files and preserve tagging; seems that you need to convert to some lossless codec (Apple, FLAC, etc.).

best you can do in itunes is 128CBR. there may be a few choices at 320, but that's the rare exception.

Portugall1:
You have hit what, IMO, is the MAJOR impediment to PC audio right now. If lossless is the only acceptable format and you must buy still buy a CD to get it (except for a very few opportunities to download mostly live concerts in FLAC), there is still a need for a good transport. As soon as we can start downloading an audiophile-friendly format, it will make much more sense to integrate PC audio into your main system.

For background music, that's a different story