Much as I dislike iTunes, that thing about the compression is simply not true - you can set the preferences to import (rip) CDs in various formats, including a lossless one, which to my ears sounds perfectly fine. I submit that my hearing isn't what it used to be, but still I can tell a rubbish recording when I hear one, and I do tend to listen through decent enough amps, speakers or headphones to notice. As to video conversion for Android, there are free apps which will do that for you (I think MPEG Streamclip works, and VLC has various export/transcoding options.) On this model, you can use OS X 10.6 (Snow Leopard) which is, in my opinion, better than the more recent Lion - less restrictive. You can also run various flavours of Linux, and (if you must) Windows - either in virtualizers like VirtualBox or Parallels, or natively on the bare hardware.
I do agree that they're very pricey for the spec, but they are very nicely made, and quite delightful to own and use, I think.