Uncompressed PC to Compressed iPod?

I have, maybe 65 full albums stored on my PC in Apple Lossless on iTunes. I put some new ones in last night and tried to sync with my phone. The sync rejected because the phone didn't have enough memory.

Is there a way to convert Apple Lossless files to something more compact just on the iPhone?

I'm no expert, but I think first you would want to copy the library, then down rez the copied data to MP3. Then you haven't messed with your original itunes library as ripped.
Use dBpoweramp Music Converter to convert to mp3 while keeping the lossless files.
I too would love to know if there's a way to have itunes convert to lower resolution files on the fly, as it ports songs over to your ipod. It would take more time, but wouldn't require the file management hassles of making low res copies, moving them, then deleting them or somehow else tracking them in your library
It couldn't be easier with dBpoweramp Music Converter. You create a new folder, then batch-convert a whole folder to .mp3 (or whatever) in the new folder, while still keeping the original lossless files. Do it overnight, and then direct itunes to the new folder.
You can do the same thing with itunes, pretty much. Create a new "media folder", change your default format to mp3, select a bunch of songs, tell itunes to convert to mp3. The songs will be in your new folder. If you don't want them cluttering up your library, sort by creation date, delete the files from library but not from folder. Then switch your folder back to the original one for "normal" ripping.

I'd love to transfer files to ipod on the fly, downconvert, and not save the mp3 versions.
This is interesting. Just found this on "Doug's Scripts", which is only usable on macs:

Lossless to AAC Workflow v2.1

Two scripts assist with importing/managing Apple Lossless audio files and sending converted AAC copies to a mounted iPod set to "manually manage songs and videos".

Lossless to AAC Workflow (CD->iPod):

Imports each enabled CD track as an Apple Lossless file
Makes a converted AAC copy of each imported Lossless file
Adds the AAC file to iPod, deleting the original AAC from iTunes.

Lossless to AAC Workflow (iTunes->iPod):

Makes a converted AAC copy of each Lossless track selected in iTunes
Adds the AAC file to iPod, deleting the original AAC from iTunes.
In this way you can keep archived Lossless files on your hard drive, and manageable AAC files on your iPod.