Everyone knows that the iPod is both an MP3 player and a portable hard drive, but for audiophiles, it's a pretty versatile unit.
iPod is compatible with WAV and AIFF, so you can dump your CDs directly to iPod at full quality. There's no need to compress your music at all.
To adjust the compression settings in the included iTunes software, go to Edit-Preferences-Importing.
Granted, you might only fit 25 albums on the 20 GB iPod, but this is a very easy choice if true "CD Quality" is essential.
If you're still interested in pursuing compression, iPod supports:
iPod Specifications
AAC (16 to 320 Kbps), MP3 (32 to 320 Kbps), MP3 VBR, Audible, AIFF (Mac only) and WAV
Using a high-quality MP3 encoder such as LAME, you may find that at very high bit rates (256 Kbps) you can achieve sound quality that you're comfortable with.
I haven't tried the AAC format that Apple touts as a higher-quality alternative to MP3, but that might work for you.