How do I compress my iTunes library without creating duplicate files?

You can't convert the files in iTunes without creating duplicates. Converting doesn't overwrite the original file it creates a copy in a different format so you can (if you wish) keep the uncompressed files to play through a hi-fi system or your computer speakers for example. You can sync the iPod using the "Sync Music - Selected Playlist" option. Create a smart playlist to gather the MP3 files together and use that playlist to sync the iPod. You could create another if you like to gather the AIFF files for listening to on the computer.

Yes you can view the playlist just like you view the library. If you open the playlist and use the Browser for example (View>Show Browser) it will browse the playlist in the same way as it would the whole library. You can also use View>As Grid and View>As Cover Flow with the playlist open and again it's just like viewing the library only you see the contents of the playlist

You're welcome, take care.