AAC works fine on an iPod. Any format that iTunes will import from a CD should work on your iPod.
There are differing schools of thought about which format is better and so on, but for most people with normal hearing and what I would consider reasonably priced headphones, there is no noticeable difference in sound quality.
One thing to consider: if you want these songs from your CDs in a different format, import them again with the different encoder selected. Converting a song has the potential for introducing errors which would come through as noise, pops, or distortion. Much better to avoid that possibility and just reimport with a different encoder.