Chess,

FLAC does compress the file size but not the bitrate, you still get maximum sound quality, just like the original WAV file, but in a smaller file. There is no downside to Flac compression.

Flac is very well supported, not sure about ipod cause I don't own one but most players I've seen do support Flac. Either natively with via a plug in.

Acoustic Zen Adagio, Veritas center, Axiom EP500, QS8s, Anthem AVM20, MC20,Adcom GFA7400