Can I use an iPod with AAC files via the aux?

[Tangent]

I am about to get an iPod and after days of research and listening decided on the 128 AAC (vbr) codec over Apple Lossless for use with the speaker dock I'm getting to use on my UK cottage holidays.

But I also want to use it in the car via the aux socket. I put some AAC files on a cd and the stereo couldn't recognise them although it plays MP3's fine.

When I connect the iPod will it work with AAC files? Is it that the iPod plays them and the sound comes through the speakers or will I need to use an MP3 codec to copy all my CD's?

Not going to be able to get the iPod for a few days and want to get cracking uploading my entire CD collection so any advice would be very welcome.