[sjwright]

You can only say that because of the astonishing improvements to MP3 encoding over the past fifteen years. Back in 2003 when Apple opened the iTunes Store, AAC was substantially better than MP3 at all bitrates, most particularly the 128 kbps rate Apple initially used.

In fact the decision would have been made back in 2001 or earlier, given that the original iPod released in 2001 supported AAC decoding.

(The music labels also forced Apple to encrypt everything, therefore there was no incentive to use an open format. Had they used encrypted Vorbis, that would have been seen as a giant middle finger to open source.)

[duskwuff]

I don't think the iPod supported AAC at its initial release. Virtually no software supported it at that time -- that didn't really come until 2003, when iTunes 3.0 added support for AAC (including encoding). The Music Store was introduced in the same release, so there would have been a required software update for iPods at the same time, to add support for Fairplay encrypted files.

[sjwright]

Correct, not supported at the point of release, but its specs did strongly suggest it was factored into the hardware design.