Use the a program that compress using the LAME libraries. There are plug-ins for iTunes. LAME produces higher quality compression with a wide range of user configurable options. The downside is that it takes a little longer to produce the compressed file.

MP3 generally, as you noted, is a universal format. If you are *sure* you'll be using an iPod for the foreseeable future compressing at 192 with AAC is also a good alternative. Sony has also recently started supporting un-DRMed AAC.