i convert FLAC's to Apple Lossless. i keep those on an external HD and have iTunes index them without adding the files to my designated iTunes media folder.
i then have iTunes convert them to AAC 256.
once the FLAC's are converted to Apple Lossless format, you could also use this script to populate your iPod:
Lossless to AAC Workflow v2.2
Two scripts assist with importing/managing Apple Lossless or AIFF audio files and sending converted AAC copies to a mounted iPod set to "manually manage songs and videos".
Lossless to AAC Workflow (CD->iPod):
Imports each enabled CD track as an Apple Lossless or AIFF file Makes a converted AAC copy of each imported file Adds the AAC file to iPod, deleting the original AAC from iTunes.
Lossless to AAC Workflow (iTunes->iPod):
Makes a converted AAC copy of each Apple Lossless or AIFF track selected in iTunes Adds the AAC file to iPod, deleting the original AAC from iTunes. In this way you can keep archived lossless files on your hard drive, and manageable AAC files on your iPod.
Yes, iTunes 9.1 will auto-encode tracks to iPod, but only 128 kbps AAC; these scripts enable use of your Custom AAC encoder setting.