If you really want to geek out on this subject, check out the
Hydrogenaudio Forums. They even have blind side-by-side listening tests to check the different formats.
You stated your interest in the iPod. For the iPod, you would use either MP3 or AAC (it can also read WAV and AIFF, but those are completely uncompressed, and you'd only be able to fit like 30 albums on a 20 GB iPod that way). MP3 is an old format, so it isn't as efficient as the newer formats and loses some high end no matter how high of a bitrate you encode. AAC is more efficient, but doesn't play on many other portable MP3 players. So, it is quality vs. portability.
I rip AAC at 128 kbps, which seems good to me.