I think the answer as to what bitrate should be used depends upon many factors, but in general, if you want fidelity above all, then clearly the simple answer is to use the highest bitrate possible. This, of course carries the penalty of fewer songs being on the device.
So, if fidelity is king...and you are OK with periodically removing some music from the device (to make way for new flavors of the month) then that's probably the approach that I would take. However, if you want to keep amassing music on the device, and if you have a lot of music, you have no real choice but to compress heavily. If you are OK with this approach but would like a compromise solution, then I would probably say go with 192 or 224 knowing that you'll have to shuffle music on / off the device more often than at 160 (or below) kbps, but less often than if at 320 kbps.
For me, I use my mp3 player at work (headphones) and in the car (through its speakers). As such, I have found that 192 kbps is (to me) a reasonable compromise between fidelity and file size - that bitrate seems to be the 'knee' where I really start to hear bad stuff happening (i.e. 160 kbps and below).
As far as the number of files, figure (roughly) that at 192 kbps you'll get somewhere around 8:1 compression (I'm doing this from memory). As a touchstone though, on my 60 gB mp3 player, I seem to recall having somewhere around 8,500 songs (all at 192 kbps). Still, I have my library (25,000 + songs) in wav as well as FLAC. I love using FLAC as a 'gatekeeper' because it's about 1/2 the size of the wav file, supports tagging, and can be converted to just about any otehr format and bitrate. However, I still stream wav files to my media device because its firmware does not support FLAC, and the product is no longer supported. Remember though, .wav is as big as the file can get, that is, there is no compression in the .wav, so those will be the largest...but offer the best fidelity.
Apple now offers their own kinda-sorta version of FLAC called ALAC, and it's purported to be better sounding than other previous Apple formats, but like FLAC, it does not compress to the degree that mp3 (especially low bitrate) does. This makes sense though - you can have a small file...or you can have full fidelity, but you can't have both. Thus, 'compromise' is really the watchword for the day, and ultimately, you have to decide what sounds 'good enough' to you.
Hope this helps...feel free to email me if you want