It does not convert all the files - it converts SOME - but that's only for the iTunes library - not the original library you upload it from.
2009 Giant Avail Advanced 1
2008 Trek FX 7.5 (Commuter)
Baby Blue..retired to new rider: 2006 Giant OCR-C
about to ask the same question. If you're worried about iTunes and iPods using AAC files, it should be noted that for the same bit rate, AAC sounds considerably better than MP3.
Also, only the HDD-based iPods can skip. Nanos and Shuffles are both flash-memory systems which can't skip.
For 3 days, I get to part of a thousand other journeys.