[D-Dub]

Yes it does but you can also convert your mp3s also. Since most of my music is live sets I find that converting to m4a retains the quality yet I can save a good 60 megs. Steve your right is does offer souround sound also. The codec was made by the orginal maker of the mp3(that German guy), but Dolby and some others have had an input also. Personally I hope this takes off, but alot of the content on the net is still in mp3 format.
The thing is you have to have a decent processor to compress the file, I find that a 200meg set takes about 10 min to re-compress in the m4a codec.

One thing Im starting to notice is that Apple is really moving towards the future and Microsoft is starting to play catch up.