wav format is best in raw format.
i personally use mp3 in high format
256 kbps, 44100 for sample rate (also helps when burning if you convert to .wav when you burn to a CD) and Stereo.
If its not music(speaker/podcast or other) i use this for space for my mp3 player:
24kbps 11025 sample and mono
Whenever you convert you always lose quality, I say stick to one format if you can. AAC or ATRAC does not have that many benefits its just less used, personally I think AAC is better (for sound quality only but its minimal from a high rate mp3) but mp3 h/e theres more uses for mp3, hence why i use i high kbps. But if i were you i would not convert your already mp3's to AAC or vise versa unless you really want to.