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It seems to me that you're on the right track. If it sounds good, you must be doing something right. The only way to improve quality would be to import in Apple Lossless, but your iPod might not even be able to resolve the difference, unless you pony up for a separate headphone amplifier.
I imported all my CDs in Apple Lossless because I also use my computer as a music server. If I were only using my iPod, everything would be AAC 320. It's a great compromise, since lossless takes up WAY more space for a tiny quality improvement, if you're just using the iPod.
By the way, I love my Shures, too.
Agree. I find that 320kbps is a good setting, balancing quality with file space. To me, 320 sounds good, a significant improvement over 128.
For iPod listening I use AAC as well.
For hi-fi listening I use Lossless.
This means for the CD's I want to listen to on my hi-fi, I encode twice. I change the name of the Album title on the Lossless import to have a "_AL" extension (for Apple Lossless).
Then I create 2 smart folders based on encoding. I sync the low-encoding to the iPod and sync Lossless to my AppleTV.
-V