In a direct comparison between .wav and Lossless via an iPod Photo 4G 60gb on a high resolution home sound system, the differences were small, with a nodding preference toward the uncompressed .wav playback. The high frequency extension, bass impact, instrumental placement and sense of dimensionality were better with .wav, however the Lossless rendition was well enough presented to be a meaningful approach. For portability I now use Lossless as my main encoding method. I only copy my own favorite CDs to the iPod and do not use downloaded individual songs, if that is useful information.
Using this iPod set up through HD600s/Equinox/Zu Pivot m-to-m and the RSA SR-71, I find much to enjoy.
AAC encoding was clearly inferior in tonality, soundspace rendering and transparency, if you will pardon the audiophilic jargon.