Whichever format you decide to use in the end, rip your CD's to the hard drive with
Exact Audio Copy, the defacto standard for the best quality rips.
For mp3's the best encoder is
LAME and anyone that tells you any different is mistaken.
AAC (mp4) is also gaining popularity. Two common sources for the mp4 encoder is Nero Burning ROM and the free Apple
iTunes Player. Could be a good choice for your iPod and the audio quality is much better than mp3.