Pros and Cons of 256kb vs 128 kb music files

Why don't you make two copies of a few things you are familiar with in the different bit rates and have a listen for yourself. People will have different preferences so it's always best to go by your own ears. If you can't hear a difference or the difference doesn't bother you then you can decide if you want to save space in future by going for the smaller bit rate. Whatever your decision, it's always preferable to re-rip from the original uncompressed format rather than converting the larger already compressed files which can give you a poorer quality sound.

If you have a decent pair of headphones or earphones use those to do your comparison instead of the laptop speakers, I presume you'll do most of your iPod listening through those anyway.

*I guess the crux of my original question is why provide the option of a larger file size in the first place unless there was a noticable difference in audio*

The option is there for those people who hear the difference in quality, you'll find people here who won't tolerate lossy compression at all and only rip in Apple Lossless format. It will also let you make choices depending on the equipment you are going to be listening to the songs through, a highly compressed file routed through a Hi-Fi will be of noticeably low quality but might sound ok through the computer speakers. The options are there to cover various listening environments as well as space issues and different tastes.

As I said at the beginning it's really going to come down to personal choice. Some people will have a greater tolerance to compression or the the ability to hear more than others. I personally don't like using 128kbps and find the higher bit rate produces a more acceptable sound. I also prefer the sound of vinyl LPs to Cds but you might be perfectly happy with lower bit rate compression. Go with what you hear and don't worry what other people's preferences are.