I'm not sure what iTunes Match will do with a track that it doesn't have in its database that is less than 256kpbs - I didn't have any that fit that spec.
My guess is that they may upsample it to 256kps for consistency across the entire music collection - even though this makes no sense.
As for the difference between the lossless Apple codec version and the 256kbps version - well that's the basic trade-off of iTunes match that you have to decide on for yourself.
To me, the fact that I have full bitrate Apple Lossless still available to my home LAN is enough of a compensation. I now use only 2 - 3 GB of my iPhone and iPad for downloaded iTunes Match songs, but I have access to my entire 9000 song library anytime/anywhere with a still very high quality 256kpbs AAC version. At home, my playback devices are from Denon and Onkyo - not audiophile stuff, but pretty good, and I can still tell the difference between the 256kpbs versions and the Lossless.
On the road, with iTunes match, my playback devices are either earbuds or analog audio out of the headphone jack into my car stereo - there's no way I can tell the difference in the vast majority of songs because of too much ambient noise competing.
$25/year for this functionality is a BARGAIN. It means I can now have all of my mobile music needs taken care of with about $5 per month ($2 to Apple and $3 per month to Pandora for Pandora One) - instead of $10 per month for Rhapsody or Spotify or a service like that.
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iTunes doesn't carry most of my 34GB music collection. Also, there's a fee for iCloud. Also, there's some question about how the information revealed from one's audio files will be shared with law enforcement. iCloud sounds like paying Big Brother to sue you for the worst of your music collection to me.
There's no additional fee for the space used by your uploaded songs that didn't match the iTunes library in iTunes match. The service is related to iCloud, but it doesn't use iCloud's storage space in the way that the Amazon service uses up storage for songs that you didn't buy from Amazon.
The limits in iTunes match are based solely on the number of songs in your library - 25,000 songs (or it may be 20,000 - I don't remember right now) - whether they match or not. If they match something already in the library, Apple gives you the version from their library when you request it. If it doesn't match, Apple down-samples the track, uploads it to their server and gives you that version when you request it - the amount of space that takes up doesn't cost you a dime.
As for law-enforcement, though it is not explicitly stated, the generally accepted idea of Apple's approach to this is that they have finally been successful in convincing the record labels that this approach is going to net more money than trying to stop piracy and sue their customers. Apple is guaranteeing hundreds of millions of dollars to the record labels - and this program is basically seen as a piracy amnesty program.
If your entire library is pirated, it might not be too cool to use iTunes match, but still $25/year is better than nothing.
My library is 90+ percent rips of purchased CDs, probably about 3-4% rips of CDs from sound-board recordings at live concerts of artists that I've purchased many of their CDs. The remaining 4-5% is made up primarily of songs that I had purchased from one of the gray-market Russian music download stores before that was shut down. CD-quality songs that I own because of a loophole.
I might have somewhere between 20 - 100 tracks remaining out of 9000+ that were true "pirated" music, though in the case of those tracks, they were albums that were out of print and I could not purchase, as I find those songs to play again, I check from time-to-time and will purchase the songs when they come back into "print" digitally.
For me the $25/year is purely a service fee - and a cheap one at that, which allows me to access my music from anywhere on my iDevices - and the amnesty/licensing umbrella of Apple is just a nice side benefit.
