[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.