IF Apple has a music service (my bet is yes) I'm thinking 128/160 kbps AAC audio with DRM which wouldn't yet be enabled outside of iTunes 4 (prevents ripping AAC CDs onto another mac, but not playing, that kind of thing).
I'm a strong believer that Apple will be using at least 2 kinds of services in AppleTracks. I'm not sure how yet, but it seems to me that it's likely that there would be a few kinds of music you could get. I was brain storming this, so here goes:
1) For pay music. $1/song, $10/CD. Tracks how many songs per CD you have, offers you that much off upgrading to the whole CD (for example you buy 3 tracks on a 15 track CD, then you can get the other 13 tracks for only $7)
2) Low-pay songs. Songs that are on CDs in stores, but for whatever reason are less money, like smaller publishing labels, artists that have cool contracts and like apple, songs that suck, etc.
3) Free music. Perhaps either streaming on demand of music (Apple-branded internet radio with lots of main stream stuff, per-song on demand. Cool idea i think). Free songs thanks to artists (promo track to buy a whole AppleTracks CD online).
The other idea for this would be a garage band, underground band, unsigned band etc signs a deal with Apple. For hosting fees (say $100/month maybe) Apple will host your music on this service. The artist could set a price and try to pedal their music via iTunes for pay music. Then Apple would track the popular unheard of music and make it easier for everyone to find it (since we all know that there's a lot of crappy music out there).
Another idea I had, would you be opposed to Apple putting in ad banners on part of the music system? I mean think about it for a while. Sherlock had ads as I recall. Apple was cool though, they put in their own ads too, and they never allowed flashy "click the money and win $100" crap. To me if I could have $0.75/song instead of $1/song i might do it.
To answer the previous question, AAC Audio is amazing. At 128 kbps (less than the iTunes default) you get music which sounds better than a CD on iTunes (how can this be? well iTunes isn't a $3000 Denon CD player with dual super linear processors and 24/192khz Burr Brown... sorry audiophile rant) I also like that at 128kbps Apple can change the iPod from 1000/2000/4000 songs in your pocket to 1250/3000/6000 (or whatever, im not doing the math for you people). Now if they go to 30/40gb they might be able to make some fun claims like 10,000 songs in your pocket, which to be honest with you, is a lot more than i have. well 1pm EST tomorrow we'll all know.