I’d prefer that everyone in the world used FLAC, but since there is still an inexplicable desire to use lost compression formats to save storage space I am going to recommend that you at least upgrade to the OGG Vorbis format.
This lost format uses a better compression algorithm than does MP3 (or AAC or WMA &c). This means that for a comparable bit rate you will get a better sounding reproduction and likely a slightly smaller file.
No, iTunes does not natively support either FLAC or Ogg. However, nearly every other media player out there does (from VLC to Windows Media Player with a plugin to Winamp). If you are using a Mac iTunes can be made to play nicely with FLAC and Ogg (see this post for information about this lamentable exclusion on the part of Apple and a workaround for Mac users), but again I would recommend using some of the other players (a nice list is found on the workaround article I linked above).
Don’t cry to me because you can’t fit six months worth of music on your personal music player. We used to be content carrying around three or four tapes at a time (while walking up hill both ways in the snow). Even a small player (say 8 GB) will hold more than that (8 GB could hold about 20 albums as FLAC).
I have a 60 GB iPod (running RockBox so I can play FLAC’s; kiss my ass, Apple) and there is enough music on there (though less than 10% of my collection) that I don’t see repeated tracks after months of casual listening on the bus.
If you don’t feel up to making the switch to lossless audio and want to stick with lost formats, OGG will still provide better performance than an MP3.
Be good to your ears. They love you long time.