I do lots of digitizing of vinyl LPs, and I A-B compare the original with the digital through my JBL L100 studio monitors. After lots of experiments, I settled on .mp3, -V 0 --vbr-new, what MC calls "Extreme", for my main library. Though it's "lossy", to me the result sounds identical to the original for 99% of the recordings.
I tried .flac because lossless *should* be best, but I couldn't hear any difference compared with "extreme" .mp3 -- and the files were MUCH larger, and I'm already at more than 60 thousand tracks with a thousand albums to go! (I use .flac now and then when .mp3 doesn't sound quite right.)
I down-convert for iPod to .mp3 High Quality Portable.
I use Extreme because with many tracks I dislike the sound of less than 256kbs. There can also be degradation or shifting of stereo imaging. I find 128kpbs to be seriously harsh, with unnatural and unfaithful to the original peaks and valleys in frequency response, and sometimes an annoying "edge" that sounds like a worn needle tracking a beat up 45. Just my opinion.
Speaking of A-B comparision, I have vinyl and CD copies of many recordings and often the CD sounds harsher. Not always, but often enough to notice. Sometimes the CD sounds better, usually due to being a cleaner medium, not higher quality recording, usually due to a good condition LP pressed on inferior vinyl. Some record labels were notorious for this (Chess/Argo/Cadet and others). Other labels drove the cutting head with too much amplitude (Columbia in 70s) so there's cross-track distortion (one LP track has so much groove side-to-side movement that the vinyl is pushed into the adjacent track -- listen for "pre-echo" where some sound is in the silent groove before the song really starts).