This one is straight from Apple’s eNews March 10, 2005 newsletter:
If you’re after the highest quality tunes and regularly import songs at bit rates higher than 128 Kbps, iTunes offers you the best of both worlds, letting you keep your high-quality songs in iTunes while exporting leaner versions of the songs, sized just right for iPod shuffle.
Here’s how: Connect iPod shuffle, open the iPod Preferences dialog, and click the iPod tab. Click the check box next to “Convert higher bit rate songs to 128 kbps AAC for this iPod.” Then click OK.
The next time you Autofill iPod shuffle, iTunes will automatically convert songs to 128 Kbps as it exports them to iPod shuffle. The original versions in your iTunes collection, meanwhile, will remain in your library at their higher encoding rate.