From my experience, I've found that encoding at 160kbps AAC sounds better than 128kbps AAC. With most classical music.
Listening to some solo viola by Bach, where I know the original cd very well, in bed on my iPod I can tell the difference between the bit rates above.
The 128 can sound a little squelchy to me at times in the music. This is on my own, in a silent room.
Now I tried this out, a few weeks ago, just to see if I was being too fussy. I went outside with medium traffic 30m away and I could still here the difference between 128 and 160 AAC with the aforementioned piece. Classical music's the only thing that I could say I am this fussy with, but I have noticed some splash cymbols sound better encoded in the higher rate.
I myself play the viola, so I might be more critical than most, but I would say solo or chamber music is the most vulnerable to compression.