The Fraunhoffer algorithm is superior to most others under current thinking. I use Fraunhoffer 192 VBR/high on my Ipod, and while I can tell the difference A/B'd with a CD on my main system, My main uses for MP3's is in the shower (hooked to a pair of computer speakers/sub) or in the car (using a line to cassette adapter), two environments where a bit of degradation isn't really noticeable. When I'm on my main system its usually sat audio channels from DISH instead of the Ipod, which has about the same drop in quality from CDs.
While there don't seem to be any artifacts, the bass doesn't seem as robust and treble seems a bit weak, and imaging suffers. Reverb tails seem a bit drier, too. But all of this is acceptable in the environments I use MP3's.
Other than the portability, the ability to shuffle between 700+ cuts (so far) is the great appeal of the Ipod to me, and I'm still amazed everytime it uploads an entire new CD in under 10 seconds.
There's no place like 127.0.0.1