Sometimes a player comes with some shitty pack-in encoder, but you don't need it. Hell, you can do this setup process right now.
Step 1: Download
Exact Audio Copy (EAC). It's free and stupidly easy to use (CDex also does the job, but as I don't use it these instructions don't reflect that piece of software).
Step 2: Download
LAME. All you need is the executable. Unzip the executable somewhere. I suggest c:\program files\LAME\
Step 3: Install EAC. There is a configuration wizard that should appear during install (or if not, it's on the file menu)...
1. It's just asking which drive you're talking about. If you only have one CD/DVD drive, move on.
2. Accurate Results: Slow rip (2-4x), but very high quality. The alternative is a super fast rip with perfect quality for non-audiophiles. Select whichever, but if you want to get all of your albums done in short order, choose "Only Speed is important". The speed setting is also good for ripping scratched up discs.
3. Pop in a music CD when it says to. It will say some stuff you don't care about unless you're an audiophile.
4. Make sure there is a checkmark besides "Install and configure the LAME.exe compressor". You can let it look automatically or hit cancel to tell it where to look. Make sure that "Use recommended settings (from R3mix forum)" and "Let EAC create ID3 tags" are checked.
5. Enter an email address. It can be bogus or whatever, but basically you need to enter an email when prompted in order to use FreeDB, which is going to automatically label all of your music. as it gets ripped.
Once the wizard is done, it's done, and things get a hell of a lot easier.
To rip straight to MP3:
1. Put in the music CD and then load up EAC.
2. Press ALT+G to automatically label the album. (Database ->Get CD Info from-> FreeDB)
3. Click the "MP3" button on the left side of the program. Tell it where you want to save the files, and hit save. EAC and LAME do the rest.
Ipod definitely gets its share of complaints from people regarding output sound quality; something about a light hiss. I don't know if that would be a problem at all for you, to be honest, and I haven't used one enough from personal experience to say if I've also run into that issue. But based on your last paragraph, I'm guessing it could bug you if the problem is indeed legit. Creative and iRiver tend to have the best output quality, but read online (GAF, google, whatever) to find out what's alright for you. Maybe the latest gen Ipods have the problem fixed?
If this is the case you will obviously need to invest in some good headware, stat. I've been using some import cans for a few years and they've done far more to show off audio quality than lossless could ever do. To be honest, I can't hear the difference between lossless and lame VBR, and I consider my hearing to have some of the same effect as what you just mentioned about yourself, but some people like to get really crazy about it. Personally, I'd only go lossless when size is not an issue and I think I may need to decompress it one day.