iPod sound quality is also affected alot by your environment, and the isolation ability of your headphones. For casual listening walking around, etc., I use an iPod shuffle with 128 AAC. For serious listening, I bring a lossless collection around on hard drives, or higher quality (260 VBR MP3 (old rips)) on an iPod photo. I use Shure E5cs, which offer very good isolation, but outside noise still leaks in, especially on airplanes. So, consider your usage.
That said, if you have space, you can always rip in lossless, and then down-convert from within software for use on a portable player - and just keep two copies of your library.