For music they support...

AAC
Protected AAC (i.e. DRM from the iTunes store)
MP3, MP3 VBR
Audible (formats 2, 3, and 4)
Apple Lossless
AIFF and WAV (for all intents and purposes same thing, apples vs PC's)

The only compressed lossless format suported is Apple's. So if you have a flac library, then you need to convert...that would suck. MP3 is fine though.

Everyone where I work has one (except me, of course). They love 'em. Very user friendly. I like that you can shake them and it'll shuffle your next track. The software apps are pretty cool too. Although, the virtual light saber application in a room of geeks can be scary.