MPEG4 vs. MP3
Ok, before this thread gets too much further, consider the following:
iTunes already supports PLAYING MPEG4 (AAC audio) encoded music files. This is b/c iTunes uses QuickTime to do playback, anything QuickTime will play, iTunes will play. Encoding is a different story.
iTunes will ONLY encode MP3 (and aiff), it should be relatively simple for Apple to incorporate MPEG4 (AAC) encoding, but I think they're waiting until their encoder is up to snuff
To answer Yamdataro's question, the answer is none (sorta). A 128kbps MP3 and a 128kbps MPEG4 (AAC) and a 128kbps OGG file and a 128kbps WMP8 file will all be the same size (or very close). Encoding at 128kbps means every second of audio is taking 128kilobits, that's the space the encoder has to work with, no more, maybe less. However, the gain you get from MPEG4 (or the new MP3Pro) is that you can encode the same file at a much lower bitrate (say 64kbps) and still get the same or better quality (assuming you encoded from the original and not the MP3 encoded file). Hope that answers that question.
One more thing. Apple might be waiting on AAC support because they know if they toss it into iTunes now what most people will do is batch encode their current MP3 collection into MPEG4 (AAC). This won't work too well. You have to re-encode from the original to get any real gain in quality/bitrate. I can just hear everyone now, "this MPEG4 thing sucks, doesn't sound ANY better than my MP3". You can't make a compressed file sound BETTER than your original.
Enjoy