Don't worry about lossless formats like FLAC except for archival reasons; the file sizes are huge. MP3@320kbps is "full quality" for all intents and purposes; you will not be able to tell the difference, and no one else will, either. You can further strip down file size using a variable bitrate algorithm that compresses various silent or white noise portions of songs to a higher degree, while utilizing higher bitrates in portions that have more musical complexity. v0 or v1 are most often used in this type of encoding. In general, I find that variable bitrate algorithms can sometimes leave something to be desired and are not worth the slight drop in file size from full 320.
Use LAME MP3 encoder. IMO, the best way to rip music is using the Foobar2000 audio player with LAME as a plugin.
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