Ipod/Itunes commpression settings

I understand the ITunes and I pods are not the highest quality sounding gear. but this format is going to be used in the car(older cars not the sound proof living rooms they call cars today),my garage and at work through sennheiser wireless rf160 headplones and when biking, working in the yard etc. but the ITunes has like 5 maybe 6 different levels of compression for the "files" The Ipod is a classic 160gig so I have room, but I have a huge music collection.
What setting is the best compromise of file size and sound, I don't want it to sould like a transistor radio from the 80's that you brought to a park to hear the game.. but the gear(headphones) on my head has it's limits so? What one would be the one to use?
I couldn't find any good descriptions of exactly what each "type" of compression sounded like, other than compressed music clips the highs and lows..
Any insite would be a big help..
Thank you.
if you have the storage space and are going to spend all the time loading your cd collection why not just do it right and load with the least compression, or none, possible? you will have to listen to your 160gig for a long time in shuffle to ever hear the same song repeated. computer audiophile has articles about all the settings....
I rip all my CDs to AIFFs so there's no loss of information.

On iTunes, there's an option to DYNAMICALLY create AAC versions of the full resolution AIFFs when transferring to an iPod/iPhone/iPad etc. So I use the maximum setting 256kbps.

This way, I have a bitperfect back up of my CDs and I get to maximise the storage on my iPod Nano 8GB. FWIW, I use AIFF on my Classic 160GB as well. I can't fit my 1-2TB of music in there so I just sync playlists and specific albums in full resolution.