The iPod can make CD quality recordings, but it's important to get the right set up. It doesn't have to be expensive. The route I took was a Griffin iTalk (
http://www.griffintechnology.com/products/italk) pro with an 1/8 jack that I connect to stereo mic. The important thing is to get the mic isolated from the hard drive so that it doesn't pick up unwanted sounds. I rigged a pole on a tripod and mounted the stereo mic about 7 feet off the ground and got some very nice live recordings. I sometimes used the built-in mic on the iTalk if I was just recording a practice session. This really came in handy for remembering how we had worked out specific arrangements.