A bit of a geek here on this topic. First, what I do not know first hand but have read: Certain IPOD modals sound better than others. Before the latest generation was release, many felt the classic did not sound as good as the Nano. Next, some highly specialized companies take your IPOD apart and put in a mod to the DAC that costs a fortune, and claims to sound great Given the average life of a hard drive IPOD, I doubt this is prudent choice.

What I know first hand: I try to only use apple lossless. I'd use FLAC but Apple does not support this. MP3's at 250 and 320 really sound pretty good. The difference is minimal to a lossless file Go lossless and get all you can get. Space should not be an issue. You can buy a Terabyte drive for under a hundred dollars. You don't need everything on the IPOD itself. Keep the bulk of your library on the hard drive. Buy two and back it up. It is beyond me how the ITunes store gets away with selling 128 MP3's. I am a very large consumer of music and I have only bought one MP3 from ITunes. Next, you must have a good device to put in or on you ears. There are excellent buds available (none by Apple). went the headphone route. I own Senns 600's and a ATH D5000 woody. You can get the 600's for a couple of hundred dollars or less if you shop. The ATH's are pretty expensive. It's nice have a change but I think the 600's are better. There are plenty of lower cost alternatives that will provide excellent sound. Next, a headphone amp will provide not only loudness, but all the exquisite detail that recordings offer. Things like the buzz of strings, timbre of instruments etc. You will actually hear singers take breathes. I have two amps, both tubed. I love the Earmax. I also have a xcan v8. This is audio heaven with an IPOD as the source. Many say in order to get sound anywhere near as good from speakers would cost $30,000. I wouldn't know, but my headphone systems with an IPOD as the source is unbelievable. We don't need the IPOD for a non portable solution, but with this one device, I use as the source at home, in the car, and as a portable. Not bad.