I dont think I am as rigid as the tone of my post might have suggested. I am glad, however, that this has inspired a lively discussion and thank you everyone for your thoughts.
I am not trying to brag about my golden ears, and perhaps I was listening to 128 MP3s (which many of you have suggested are far inferior) during my test which actually was in my car.
To further shock and astound you, you would see from the "what car do you drive thread" that the car is a Porsche Boxster S with a stainless racing exhaust. Somehow -- even with the roof down -- a harder and more fatiguing quality was apparent on the MP3s vs the WAV files.
The system consists of a Nakamich CD-400 using low level outputs to an a/d/s amp, with a/d/s woofers in the door panels, addl soundproofing, and mediocre upward firing mid/tweeters in the dash. The iPod connects through a cable -- not cryogenically treated -- as the Nak has an aux input switch on the front panel.
Obviously, I am not trying to debate resolution, transparency or inner detail most of which will be lost in a car environment, just the sensation of listener's fatigue.
I dont necessarily expect the Ipod to be a high end device, and I am happy to listen to music casually on things that are not "high end".
But why not pursue the best when experimenting with a new format?