I mainly have my library in ALAC. For archiving I would not use anything less than lossless. I have Rhapsody music service for my iOS devices, so when I am away from home, I would rather stream and have a smaller internal library. At home, I use Plex to stream my entire library to iOS.
I also have a 160 gb classic for ALAC. I am not saying that 256 Kbps would sound much different, but I don't find myself out of 3GS range very often, and when I do, 160gb of lossless files fills in the gaps.
As for SQ vs size..if it is an issue because you have a player with less space and no wifi (like a nano), you would probably need to do some testing to see what you are happy with. I believe most people are happy with 256kbps, but with the audio Codec improvements, it may fall lower than that now.