What format is the best audio format to use in iPod touch?

Try the different options and choose the one which sounds the best to your ears. Generally, AAC will be better than MP3 at the same bitrate; Apple Lossless has a fixed bitrate.

(55499)

As stated, try the different options and select the best one; you can do this for a handful of songs if you want. Nobody here can tell you which codec and bitrate sounds the best to your ears.

(55501)

Apple Lossless would give you quality identical to that of the original CD, but the files will be very large. A 3-minute song in Apple Lossless will be around 18 megabytes, versus about 6 megabytes for the same song compressed with AAC at 256 kbps. For an iPod, Apple Lossless is probably not an optimal format, since unless you have very high quality earphones or connect your iPod to a good stereo playback system, you won't really take advantage of the quality of Apple Lossless.

For most people, the optimal tradeoff of quality versus file size is AAC at 256kbps. But as Niel suggestion, import a couple of CDs using different codecs and bit rates and decide for yourself. Quality depends on your playback system and what your ears can hear, so only you can decide what will be optimal for your situation.

Regards.