Apple do have their own proprietary lossless format (Apple Lossless) but last time I checked you could not buy the songs from the iTunes music store in this format.
Chill, MP3 is a very good lossy format, a blind test between a 320kbps MP3 and a Free Lossless Audio (FLAC) file will keep you busy. The most important part is that the music has been obtained error free and stored error free, most people would recommend a program like EAC in secure mode to rip CD's in that way, and then use a high quality MP3 encoder such as LAME.
The idea of lossless, is if you want to preserve your main/original copy of music on a computer. Also ask yourself where you are going to play these files...if you are a portable type music listener, you would have to rockbox your iPod or Digital Media Player to use FLAC's and then you have the disk space problem.
As long as your MP3's are 192kbps and above then they should sound fine. My preferred option when disk space is an issue (Portable) is VBR ~256kbps. But at those bit rates you might want to check out the Musepack codec.
Regards,
Jonathan