AAC sounds better and has smaller files than MP3 at the same bit rate. Contrary to popular wisdom, Apple does not own AAC--the letters stand for Advanced Audio Codec. AAC was developed by the same consortium that developed MP3; AAC is sometimes called MP4 although they normally have .M4A as its file extention.
The resolution you choose to use will depend on a few things. First, of course, how it sounds to you. However, you should consider under what conditions you will be listening. Casual listening and noisy environments don't require high resolution. Also consider how much music you want to carry and the capacity of your player. A typical CD at full WAV resolution takes about half a gig so an 8GB player could hold 16 CDs while the highest capacity iPod could hold more than 300. Using FLAC can double those capacities while using AAC or MP3 can potentially get you up to ten times as many CDs on your player.
As for which player, it's really all about funtionality and iPod wins that race by miles.
A major problem that you'll encounter is with classical music. The problem isn't the players, it's the available compression codecs and the systems of tagging. As you probably know, classical music identifies works differently from most other music. It values the composer over the performer; titles are usually descriptive of the form rather than a unique title. Current tagging systems handle classical music horribly because they were designed for popular music. Works that are continuous get chopped up by most ripping apps unless the tracks are "joined" (iTunes parlance). iTunes has a "gapless" feature to tag tracks of continuous music and allow them to be played without interuption but it's imperfect and just a stop-gap measure (sorry about the pun). What really needs to happen is for the compression codecs to include time indexing within an individual file, with separate tags for each index. This would make a compressed music file more like a CD. Again contrary to popular wisdom, CDs are not comprised of individual music files. The main music file is a continuous data stream; the track indexes are contained in a separate file on the disc which is loaded into the player when the disc is put in. Including time indexing in the header would barely increase the size of the file, probably 10kB at most.
