Library in lossless but want iPod to be lossy (not lousy)

I like to keep my iTunes library on my iMac in full lossless format and would like to put the songs onto my new iPod in high-quality lossy (like mp3) format. How can I do that with iTunes? Do I need to set up 2 distinct libraries each with the different format? If so, How do I convert the songs already in lossless to mp3? Thanks

I just did this for my sister's iPod - all my music is in iTunes at 256 AAC (virtually CD quality). What I did was to create a separate playlist for my sister's iPod so I could fit more onto the nano (if yours is a Classic, I wouldn't bother - the drive is large enough to hold a lot of music at Apple Lossless quality, the latest one has a 160GB HD!) Then I converted tracks to 128 AAC, copied it over to the nano manually, then deleted the playlist to avoid having duplicates on my iMac.
If you are using Apple's white earbuds, there is no point having music at any higher quality than 128 as you won't hear the difference. But if you get a decent set of earphones then you would notice it.
In the end its an equation that boils down to:
"how much music do I want on my iPod?" vs "how important is quality to me?"
and that's a choice every iPod has to face and make.
Oh - and the actual conversion is done through Preferences > Advanced > Importing, then just select the format you want. It works for converting existing tracks in your Library as well as ripping CDs.

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