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In fairness to the iPod (I have a 40g model), the AAC format in particular and the iPod device in general sound much better than competing devices. I've done my own tests and that's my conclusion. If it means anything, I do consider myself at least somewhat of an audiophile with good relative pitch and (within a range) near perfect pitch.

Read the specs on these devices. The frequency response and signal-to-noise ratio are identical to competing devices. It may "just sound better to you" -- but such a conclusion is not justified by the hardware design. You might want to consider encoding quality differences as a point of comparison, instead. Here's an interesting test of audio codecs: http://www.rjamorim.com/test/128extension/results.html. While I wouldn't tout those results as "conclusive", they're nonetheless interesting. You probably want to evaluate AAC versus WMA (MP3 is crap, IMHO--don't use it). Both AAC and WMA are lossy formats, which means they tradeoff quality for compression. Consequently, the compression bitrate that you choose has a *huge* impact on the resulting sound quality. Objectively, what you want to compare are two files that are approximately the same size (differences in bitrates, notwithstanding).

I'm scratching my head wondering what perfect pitch has to do with the quality of digital encoding.

As for lossy compression, I'm convinced that Photoshop does a better job on jpegs than cheapo programs. Could be my imagination, but I have a number of images with large areas with little detail. The program used to edit them seems to make a difference in the number of visible artifacts.

I wonder if encoding and decoding programs make an audible difference on the quality of MP3s, for the same bitrate and file size.

You probably want to evaluate AAC versus WMA

Seen that. AAC rules over WMA. AAC tends to fare better under subjective listening tests of various music types. Also, the graph of AAC output compared to the original looks better than WMA's, being a closer the original, plus WMA has a sharp cutoff at 14KHz.

My comparisons were to MP3 and were done at higher than 128 bitrates -- 196, I think.

My iPod songs are (mostly) ripped at 320.

In addition, the internal hardware design may not impact the sound as greatly as the analog output. If you can point me to a device that includes a digital output, I would be very interested.