You can’t tell much of a difference between 320 and 256, but with a high end audio output there is a small difference between the 256 and 128. I also import at 320 vbr, but I rarely would want to take up that much space on a mobile device. Ohmar, your last sentence is exactly what H Fletcher is getting at. Go buy a cd player or a turntable if you’re that uptight about whats good enough for your super fancy stereo with $100 cables (that really don’t do anything, except be well marketed, sorry to tell you). If you REALLY want to play a lossless format on some billion dollar stereo system, an iPod/iPhone isn’t the way to go anyway (because of jacks, connections, etc).
If you think its not, do a blind comparison and see if your ears can really hear the difference between 128 AAC and 256 kps mp3. For 99% of ears out there, 192 kps MP3 is perfectly fine (and thus, so is a 128 AAC file). There is more to a file than the bit-rate. 128 AAC is better than a 160 mp3 and comparable to a 192 kps mp3. Note that Apple here is using a 128 AAC file (not MP3). The information has already been lost, it cannot be regained, and re-encoding it with another lossy format just recreates more loss on top of that. This is where the “enlarging a thumbnail analogy” comes from. If your files are 160 kps, transcoding it to 320 kps does not make it better, (it’ll actually make it worse). Yes, a lossless format like FLAC will be better than any lossy format like MP3 or AAC, assuming both files were made from a lossless source (like a CD).