First, you need to get realistic. You can't compress 400 CDs to fit on a 20GB iPod with acceptable sound quality. Period. So you either have to get a bigger iPod or leave some of your music off it. Sorry to be the bearer of bad news.
How much music you have to leave off depends on what sound quality you're willing to live with. When you say you "hate the sound of MP3s," I suspect you mean 128kbps MP3s. My suggestion is that you try ripping MP3s at various bitrates, copying them to the iPod and deciding what you can live with. You might find that 160 or 192kbps gives you a pretty good compromise between compression and sound quality. At 192kbps, you can store almost 250 CDs on a 20GB iPod.
iTunes is not a full-service audio program, so you may have to try other software (like LAME, as Ed suggested) to convert your WAV files to MP3s. iTunes should give you the ability to maintain more than one music library (I know it does on Macs). I'd keep my WAVs and MP3s in separate libraries.