It is. I don't rip and encode with iTunes, so i don't know if that works for gapless.
I use EAC to rip to flac, and encode with Lame (latest version) with Foobar2000 as a front end. Using default switches for VBR in foobar gives flawless gapless playback.
**edit** i started out using Nero AAC with foobar, and that doesn't give proper gapless on my Touch.
Check my sig for a detailed guide.