That title was a little too long so I changed it to something else that can be displayed a little easier when browsing the forums, no big deal.
Like I said, don't worry about not being able to distinguish between a 128kbps file and the source lossless version. Lossy encoders have been acoustically tuned over many, many years to provide perceptual transparency. The Lame mp3 encoder has been developed on for the last 16 years (more like 14 years since the last stable release came out in February 2012 and the developers have stated many times that they have reached the extent of what mp3 technology can do). The Apple AAC encoder used in iTunes, QuickTime, and their various programs has been developed on for at least the last 13 years. That's a lot of time for developers to put in and make something sound transparent.
You also shouldn't worry about what other people say. As you came across, there are some real "idiots" out there who think they can hear a difference between FLAC and PCM WAV/AIFF when that just isn't the case. It's all the placebo affect. Many people insist on using 256kbps+ simply because they will open a 128kbps file in iTunes, play it, open a 256kbps version, and think they hear a difference. They are conducting a sighted "listening test" and are being influenced by the bitrate number they are visually seeing, they aren't actually following their ears. I even came across one person who was taking 128kbps iTunes Store songs (this was back in the day when the iTunes Store sold 128kbps files with DRM, not 256kbps DRM-free files like they do now), burning them to an audio CD, and ripping them to 320kbps AAC because the increase in bitrate increased their quality. I explained to them that was mathematically and scientifically impossible but they didn't care.
I also wouldn't put much weight into audio samples on HA as most don't represent real music conditions, like what you would normally listen to. Not many people listen to a single cello for hours on end or a singular harpsichord. Those samples exist to help people hear compression artifacts from lossy encoders but they shouldn't be used when determining which lossy encoder and setting to use (unless you're the only person in the world who listens to singular, classical instruments

). That's why ABXing is always recommended as it uses your music, your listening conditions, your audio equipment, etc.
As for the album art, that's a feature of the firmware that can't be turned off. It's an "artistic" decision implemented by Apple. The album art moves and scrolls across (or vertically) that right area that isn't being used by the firmware menus. Trust me, it's an actual improvement. Before, iPods with hard drives would have their GUI consume the whole screen. That meant that you were always greeted with a big, empty, white display when browsing through your music collection. Either way, it can't be changed.
You're welcome for the help, it's nice being able to help someone get up and going. Too bad you've come into buying an iPod now when the whole device line is at the end of its time.