ALAC on iTunes and a lossy format on the iPod

Question

I have all my itunes tracks stored in ALAC, but this size is far too big to sync a reasonable number of songs to the iPod.
I know there is a create AAC version in iTunes, but this then seems to create a duplicate item in the iTunes library....and makes the library even bigger if I choose all the tracks.
Is there a way to convert to AAC/MP3 or whatever on the fly as the sync is in progress.
The only other way that I can see is to create a second iTunes library, with all files converted to a small lossy format. Sync the iPod with one and keep the other for home playback

Answer 1

*Is there a way to convert to AAC/MP3 or whatever on the fly as the sync is in progress.*
On-the-fly conversion is only available on the iPod shuffle. The iPod shuffle (probably because of it's limited capacity) has the option to "Convert higher bit rate songs to 128 kbps AAC". This option is not available for any other model iPod. For the larger iPods the files have to be converted in iTunes first or indeed have to have been imported in a compressed format prior to transfer. An alternative to creating a different library is to sync the iPod from a smart playlist (Using the option Sync Music - Selected playlists) that picks up only the compressed files. You could create a similar smart playlist to pick up only the lossless files which you can use when you want to listen to your songs in iTunes.
Syncing selected playlists is just like syncing your whole library only on a smaller scale and more "selectively". This is particularly useful when your library is larger than the capacity of your iPod. When your iPod is is set to sync selected playlists it automatically picks up any changes you made to that playlist in iTunes since you last connected. Anything you added to the playlist will be added to the iPod, anything you deleted from it will be deleted from the iPod. In other words the iTunes playlist and the iPod are kept "in sync".
*I know there is a create AAC version in iTunes, but this then seems to create a duplicate item in the iTunes library....and makes the library even bigger if I choose all the tracks.*
Converting creates a second copy of the song in the format you have chosen which gives you the opportunity to either keep or delete the original. This is allow you to keep different formats in your library for just such as use as described above.