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I've got quite a few 128kbit iTunes AAC files because I transcode to that format for my iPod. I don't think it sounds "bad", but it's certainly not transparent and there's no way I'd buy music at that bitrate.
Good point, and I would certainly not call "audiophile-ready" a format that
clearly cannot encode some clips without audible distortion, regardless of the bit rate or the codec settings you use. And that format is not AAC in this story.
Let's digest some things from this article:
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For Rossman, the epiphany came after he bought a new car stereo and started making CDs from files he had ripped using the AAC standard at 128 kilobits per second. He had already switched from the MP3 format to AAC, largely based on assurances from Apple Computer, which uses the format on its iTunes music store and claims that, bit for bit, AAC outperforms the older standard.
Well - AAC does, in fact, outperform MP3 in "bit to bit" - on the same bit-rate AAC is almost always better than MP3.
Now, the fact that someone wants to compare 128 kbps CBR AAC with MP3 of much higher average bit-rate is a completely different story - I don't think anyone claimed that AAC at 128 kbps CBR could be better than, say MP3 @180 kbps VBR for a typical sample set. This is just wrong comparison, and I am quite sure the person who was quoted knows that very well. It is just the journalist who translated that into a misleading paragraph.
Now, hiding that obvious flaw, author goes even more with "scientific stuff applied in LAME" such as DBT, Computer Science and other buzzwords such as allmighty "model as the Linux Operating Systems" - like other codecs were not developed by using the same scientific means... Sheesh.
Finally - the "Ordinary Wired Reader" would get an impression how LAME is actually better than AAC - and how it is developed with uber-cool scientific methods

This is the core of the "mis-leadingness" of the article - I could only imagine a huge flamewar here if someone compared 128 kbps CBR LAME with, say, 180 Kbps WMA VBR and started talking about "modern scientific approach applied to blahblah powerful algorithms used in WMA" - leave alone some well-known magazine. It would be one hell of the flame

And... for the case of defending "free as in freedom" codec, it seems that people are willing to get over all that