AAC, AIFF, Lossless, MP3

That is up to you. Convert a few of the lossless files to MP3 at various rates and listen. Choose the one that sounds OK to you.

I dunno, Tvad...if he has good earphones, he might be able to hear a difference. If he's using the stock pair, then I completely agree with you.

On a separate note, I like how Apple lets you have much more memory at a small price premium. My 80 GB version is literally only $100 more than an 8 GB Nano ($349 vs. $249), and a 30 GB version is only $50 more ($299).

Only you can tell but when I tried all the different formats I found mp3 encoded at VBR 256 offered the best compromise between quality and space. In fact, my entire 40K song library is encoded in this format. In my system, and through the internal DAC of my Cary 306 SACD, I find the sound quality to be very close to the original cd. The difference is in micro details, soundstaging, and imaging.

Thank you for your responses thus far. So MP3 is arguably the best size v. quality compromise for an iPod? Am I correct in assuming that all you experimented with the different bit rates using iTunes?

Tobooe, I too have a Cary CDP and have been dying to use the DAC input! Are you going from a PC directly into the player?

I choose the Nano because of its size. I use it for running and cycling and can't wait to try it with those Nike sneakers... lol For the time being, I'll be using the regular headphones. Later, I may upgrade...

I really do appreciate any input you may provide!

Thanks again.