Bingo. I've used the double-blind testing mode in Foobar on my PC to compare FLAC and high quality MP3 (LAME V0) and I can't tell the difference - that's using HD595 headphones from a Total Bithead DAC/Amp. Having said that, disc space is cheap so when I'm in front of the PC I listen to lossless format, but for anywhere else in the house or elsewhere the iPod carries MP3 files.