iTunes now has an option (in the Summary tab) to convert higher bit rate files to 128 kbs before transferring to an iOS device (iPhone, iPod Touch, iPad) and iPods. Since many files these days use a higher bit rate*, and since it's hard to hear a difference, expecially on earphones, this is a good space saver.
It takes a long time to recompress many files though. I think I had my iPod plugged in well over an hour. I saved around 6GB on about 1400 files which were bigger. (I forget how many files my sound library is? 20,000?) On my iPhone I saved about the same, which is not far from a fourth of the space available on the biggest current iPhone (32GB minus overhead), so well worth it I think.
*iTunes file are now 256 kbs, which I think is a rather dubious choice. I saw a test from a pro, and even in careful testing, he had real trouble finding any real difference in sound quality. But file size is double.
... But then Apple will sell more iPods as people need more space on them...