AAC or AppleLossless

Apple Loseless will cut file size by 50%, AAC can perform greater size reduction. Loseless sounds better. Unless you have a very small music collection I would strongly recommend that you obtain an external HD and store the music files on it. Depending on the size and/or number of external drives you use you could store your music in the AIFF uncompressed format.

I have imported most of my files in AppleLossless with the remainder in MP3. For my purposes, the AppleLossless format does not provide any significant benefit over MP3. I listen primarily with earbuds, and sometimes through my reference 2 channel system. The iPod doesn't sound like a reference source component in my two channel rig while playing AppleLossless files, and the battery lasts a woeful 2 1/2 hours when used as a portable playing AppleLossless files, so I'm beginning to think the added battery life and storage achieved by using MP3 files is worth any small degradation in sound quality.

If you assume that you will (at some time) be porting the data off your HD into a very good DAC via a USB connection, you should definitively use a lossless scheme. I'm not sure it matters what format you choose. I know that testing has shown Apple Lossless converts back to the original format with bit-for-bit accuracy (use error correction when ripping just to make sure). I wouldn't be surprised if the same is true for other lossless formats. The downside of Apple Lossless is that it only works on Apple Itunes and Ipod, whereas other formats may also work with other music engines. There are programs out there to convert apple lossless into other lossless formats (in bulk), but not the other way around (licensing???). Personally, I ripped everything in Apple Lossless. Now that I get to know itunes, I'm not as impressed as I'd hoped though!