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By default it likely rips at 128kbps AAC. That will sound as good or better than higher bitrate mp3.
I've discovered the total trick setup though - AirportExpress and Airtunes.
I use an AirportExpress as my wireless router in my apartment. It has a 3.5mm jack (analog *or* digital - very cool) that you can connect to your stereo. Viola...stream your iTunes library on your computer to your stereo. And the best part is that it converts to Apple lossless for the stream, so there is no quality degreadation. And if you rip in a lossless format, you stream 44.1khz/16bit quality sound to the stereo.
Not sure if Airtunes is Mac-only though...don't know if the windows version will do that.
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