I believe there is still much FUD about the perceived poor sound quality of perceptual audio coders (MP3, Ogg Vorbis) as compared to its original source.
If one uses laboratory-quality headphones (not iPod earbuds!) and a studio-quality sound card (not the Griffin iMic!) and performs a valid A/B/X test, she may find that the sound-quality differences are imperceptible.
I for one, always thought MP3s sucked since back in 1997 codecs sounded awful. A Ph.D. student in audio engineering convinced me ,otherwise. He told me to give him what I thought was a good recording, and he burned an audio CD with three formats, 128 kbps MP3, 128 kbps AAC, and 16-bit 44.1 kHz PCM, and told me to identify which is which.
After repeated listening and frustration, I gave up and he told me the order. I could not tell which versions were compressed and which weren't. Old perceptions, especially in audio, die hard.
I have normal hearing (tested during 2004) and used Etymotic ER-4P headphones for the above test.
I'm looking forward to what the iPod Hi-Fi will sound like. I hope it sounds better than the Bose SoundDock, which has excellent bass and ability for high output, but the highs get very harsh at high levels.