The Squeezebox supports three lossless formats, Apple Lossless, FLAC, and WMA Lossless. Any one would probably be fine but FLAC has the advantage of being open. One great thing about lossless formats is that you can convert it to something else without having to rerip your entire cd library. Also, some programs (e.g. Windows Media Player) will automatically convert media files depending on which portable device you're managing.
The best place that I've found about ripping and encoding audio is at the
Hydrogen Audio Wiki. There are also
forums for more information.
