Best Bit Rate for Better sound

I’m new to the iTunes/iPod thing. A friend told me that he re-sets the bit rate from the default of 128 kpbs to the top of 320 kbps for better quality. [He plays everything off of his computer which is wired to speakers throughout his house and does not travel or drive much so hardly uses his iPod.] I played around a tad with the various rates on the same album and found that a fairly short one used 34.9 MB at 128 kbps, 52.1 MB at 192 kbps, 60.8 MB at 224 kbps and 86.6 MB at 340 kbps. Another friend told me that he noticed a big difference when he played a song off his iPod through his several thousand dollar system if it was imported at 128 kbps. While hard disc space is cheap and I would simply opt for the higher quality setting, the iPods are not so big when one almost triples the file size.
I tried to figure out what the max bit rates in the CDs are so that could guide the max import rate, but I could not and that question may make no sense at all anyway.
What is the max that a human can notice the difference at and what have folks found to be the best balance between sound quality and storage space?
Thanks for your help.
PC   Windows XP  

Monty, this is really going to be up to your ears to decide. All I can tell you is my experience during the 2+ years of owning an iPod. I initially thought AAC @ 128 was satisfactory. I then started experimenting with various bitrates, but kept the AAC format. I decided that 192 was a discernible improvement over the 128. Not to go into a lot of detail, but I, quite by accident, had one album download at 256 & thought, "Wow, this is unbelievably better sound, even over inexpensive computer speakers." At that point, I started importing everything in AAC @ 256 VBR which I feel is pretty darn close to CD quality sound. I have a 60GB iPod that I'm willing to sacrifice some capacity in order to ensure the best audio quality I can. This is also why I do not buy frequently from the iTunes store as I do not feel the 128 downloads are the best quality. I buy & my own CD's, now, to insure good quality. I will by the occasional song from the store when I do not care to buy the whole CD. Hope this helps!

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