ipod and dac?

Everyone knows that the iPod is both an MP3 player and a portable hard drive, but for audiophiles, it's a pretty versatile unit.

iPod is compatible with WAV and AIFF, so you can dump your CDs directly to iPod at full quality. There's no need to compress your music at all.

To adjust the compression settings in the included iTunes software, go to Edit-Preferences-Importing.

Granted, you might only fit 25 albums on the 20 GB iPod, but this is a very easy choice if true "CD Quality" is essential.

If you're still interested in pursuing compression, iPod supports:

AAC (16 to 320 Kbps), MP3 (32 to 320 Kbps), MP3 VBR, Audible, AIFF (Mac only) and WAV

iPod Specifications

Using a high-quality MP3 encoder such as LAME, you may find that at very high bit rates (256 Kbps) you can achieve sound quality that you're comfortable with.

I haven't tried the AAC format that Apple touts as a higher-quality alternative to MP3, but that might work for you.

Gunbei, The supplied earbuds are good quality for their size and weight, but if you're used to Grados, you'll want to stick with them.

Peter_S, do you mean that the Headphone sites have issues with the compressed audio quality, or the headphone amplification and output?

I would think that anybody who's a serious headphone listener would probably have something like a set of Grados and a Headroom headphone amp .. if a listener's used to that level of fidelity, I doubt that anything less is going to satisfy.

CWLondon, Do you generate the WAV files using the Apple iTunes software? I thought that iTunes knows how to tag WAVs and AIFFs just like MP3s and does so automatically. (Have you also tried ripping a track to AIFF and see if it can be tagged?)

Personally, I would be wary of sending CDs off to someone else to rip them .. it's just so easy to use iTunes or a quality program such as Exact Audio Copy with the LAME encoder as a plug-in.
http://www.exactaudiocopy.de/
Lame: http://www.mp3dev.org/mp3/

Gunbei, File fragmentation should be the least of your worries on an iPod. The unit has a 20+ minute "skip protection" buffer, and even at 10MB/minute, reading uncompressed audio shouldn't be that much of a challenge for the on-board hard drive.
That said, I'll second StefH's comment that if it's an issue for you, you can always delete and re-sync your iPod.