There's no problem with MP3s, or the players so long as you use a VBR with a minimum of no lower than 128kbps. I use Razorlame (a simple free LAME encoder) to encode to a VBR of Min 192kbps, max 320kbps.

I however would suggest that rather than buying an iPod, you buy the new Sony walkman, or a Creative Zen.
iPods have the ability to self-destruct for no apparent reason. You could wake up one day, tur it on and realise that the harddrive has screwed itself over during the night, even while it wasn't playing. The Zen Sleek (the Zen which I have) also has better aspects than the iPod including:
-FM radio
-The ability to transfer music WITHOUT the need of a special program which converts it to a format which isn't actaully MP3. This also means that with a Zen, you can take music off it and put it onto a computer which doesn't have iTunes, which you can't do with an iPod.
-Longer battery life
-Cheaper price
-The Zen Sleek looks classy as foock, whereas in my opinion the iPod looks a little "so what?"-ish.

There are also other crappy things which you'll never use like a calendar.

Also most people who own iPods don't have a clue what music actually is, so they only use about a tenth of its capacity which they fill with shitty bitrate tracks wich weren't any good even when they were audible. With the iPod, comes this personal label... absolutely free!

Of course if being labelled doesn't matter to you, then don't worry about that, but I'd still reccomend a Zen.

And whatever player you go for, you MUST buy a pair of earbuds (the things with silicon buds which stops outside noise getting in). They give far better quality sound, deeper bass, and they mean that when you're listening to music, all you hear is the music. Very handy when you have to get on a bus full of little kids.