Well, first off ipods don't play MP3's, they play AAC's which is a newer and supposedly better compression form over mpeg-3. AAC is actually mpeg-2 AAC or mpeg 4 AAC depending on it's quality. mpeg-4 AAC is supposed to be better than mpeg-2 AAC in terms of sound quality and file size. I believe mpeg-2 plain is video only, not an audio compression scheme.
In my opinion, AAC's don't sound any better than MP3's on your standard headphones, computer speakers, and lower-mid end home audio systems. Maybe when you get to the higher end it is better, but at my price range MP3 is the same.
I am not sure about the size comparisions as all formats have different quality levels that you can change. For example I rip audio at 192 Kbps MP3, which means that a 3 min song takes roughly 4.32 MB 1GB/4.32 = 231.5 songs per GB x 4 = 926 songs in 4GB.
If you record at a lower rate MP3 like 128Kbps, then you can fit 1389 songs in 4GB. The other formats such as AAC and WMA have quality levels that can be changed so space taken up per song would change as well. Hope that helps!
-spike