Well, the downloaded iTunes Store music is 128kbps AAC, which is only slightly better (in my opinion) than 128kbps MP3. My iPod and iTunes library is all in 224k AAC and is somewhat indistinguishable from WAV (cd) on a portable (but very much so on a home unit or a well-amped rig with a set of good headphones like Senn HD580's). I spent quite a bit of time coming up with the 224 decision, a/b'ing with various combinations. So, although I've done no direct a/b'ing from the Store, the assmption is that 128kbps AAC will be clearly outdone by its CD counterpart, even on a portable. The distinguishing characteristics are on the ends of the frequency chart (cymbals, deep bass) as well as overall harmonics.
FWIW, my home ripped collection (up to about 500 cds so far) is FLAC, a lossless (like WAV) compression (unlike wav, saves me 50% disc space). What I do is rip to wav, inport into iTunes with 224 AAC, then take the wav files and convert to flac in bulk (i.e about 20-30 cd's at a time).
ted_b