Yes it is possible. just a few extra steps.
First select new ripping format:
in iTunes:
1) iTunes>Preferences>Advanced>Importing>"Import using">AAC or MP3.
2) in the Library...Music window: select the Album/CD that you want to convert.
2a) Select the Album/CD tracks using Command or Shift key for all tracks desired.
2b) From menu bar: Advanced>Convert selection to AAC (or MP3, etc.)
now you will have a re-imported version of the CD in your iTunes library. Select those new lower bitrate tracks and drop them into your iPod. Delete the lower version from the main library when finished (if desired)