iPod help needed...

Apple Lossless is a great way to keep file sizes down (I currently have about 160gb of AIFF raw on an external FW disk), but I would recommend AAC 320 as well. The DAC and op-amps in The iPod are QUITE good, but not so good that most would hear a dramatic difference.

I'm also using an X-CAN v3 with some grados and love it...

The way I see things is, you're dumbing it down to some kind of 1/8" plug to RCA, plus the line-out on the dock, so with those kind of limitations, going WAY overkill is silly - unless you are storing music at full AIFF or Apple Lossless, going out via a USB or FireWire cable to an external device with SPDIF to a DAC etc... which I have admittedly done, but that kinda defeats the purpose of having a PORTABLE music player, eh? :D

Plus, I forgot to mention in my 320 AAC endorsement - in addition to allowing FAR greater storage capacity, the smaller 320 AAC files will greatly increase battery life (no big deal if listening thru a doc tho). The RAM buffer in the device is only but so big, if the (Lossless) files are too big to hold it in its entirety, the disk will be reading constantly, which is not only a draw on the battery but more wear-and-tear on the whole unit. It's a very high quality portable, treat it as such, not as a music server. If you want a portable unit that holds a LOT of music, an external firewire disk from LaCie such as the Big Disk (up to 1TB!!) or the sexy, small but rugged "Designed by Porsche" ones (such as the 160 i have) would be more suitable for your needs.