What is the best compressed iTunes format?

First, let me state that I fully understand that an uncompressed format is far superior to a compressed on such as MP3. My current iPod is a 4GB unit, but I just had the battery replaced on my wife's old 30GB unit and plan to transfer my music that direction.

I generally use it for listening at work on Sennheiser earbud headphones that retailed for about $80 new so we're not talking HiFi. My only iPod connection currently, or planned, to my main stereo is via an Onkyo dock so I'm not getting the benefit of an external DAC so again we're not talking HiFi.

Knowing that I have somewhat limited space, what would you recommend for me to choose as the format for iTunes. I've never done anything beyond one of the lower compression MP3 options, is there something better?

Please provide a suggestion and why.

Thanks