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AAC seems like the safest bet, i mean if you look at the facts
-Apple likes to be first with technology and mass distriubitng music in AAC would be pretty close to first.
-iTunes needs an update so this new feature + music service would be a great reason to have iTunes 4.
-The iPods are probably not fulling using their audio quality potential and might get closer with the AAC compression and playback.
 
AAC mp4 seems to be the best candidate. if i remember orrectly, quicktime was recently updated to include better rights management in mpeg4. thats probably a direct precursor to the music service.
 
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