Dear Gooner,
I was appalled reading all the answers to your question. There is even, in the October issue of What hifi, a recommendation to use classy headphones to listen to Lossless files.
I recently bought an 80Gig pod and promptly flled it with Lossless files. They sounded OK at first, but when i did an A B comparison with my hifi I had a shock. There was no life, the music sounded flat, it was nothing like good reproduction. I never before purchased an iPod, because I had always assumed you could only use compressed files in them. it's not true. I have now thrown out all the so-called 'lossless' files, and (using the 'advanced' window of iTunes preferences) replaced them with WAV files - of course, far fewer CDs go in, but what a difference! Night and day. if you want real quality, there's no substitute. i can play my iPod through the hifi (either Rotel RA04/RCD6/ pair Rega R3's here in Sri Lanka or Naim 102/180/Flatcap2/pair Sonus Faber Cremonas at home in Switzerland) and enjoy almost perfect performance, up to CD deck quality, and i have bought myself a pair of Sennheiser PXC 300 cans (half the price of those Grados recommended by the mag), which go down to 8Hertz, we are led to believe, and do indeed sound marvellous.
Please believe, me, you have been conned by the whole MP3/AAC thing - these are total rubbish, and all the fuss about them and attention to these crappy media - they are not music at all - is killing real interest in music. You have not heard an iPod yet. it can be sublime, and even high end American hifi mags love them when they are used properly with WAV or AIFF encoding.