I convert AIFF files to AAC; I've had very good results creating 32kbit mono files with QuickTime's voice filtering enabled. Then you can rename the resulting files to .m4b, and iTunes will automatically add them to its Audiobooks section of your library rather than mixing them in with your music. Also, if the file is named .m4b, you don't need to set the "remember playback position", because this happens automatically.

If you put each chapter in a separate audio file, I also recommend using Join Together, as this will use QuickTime and Apple's ChapterTool (which must be installed separately) to combine all the chapters into one large .m4b file that has embedded chapter markers. Very nice for the iPod or iTunes.

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