LAME (LAME Ain't an MP3 Encoder) is the recommended encoder. It has been developed by the open-source community since 1998, and has become the highest quality encoder for most purposes.

Some benefits for using LAME

highly optimised presets
Exact Audio Copy support
CBR, VBR and ABR encoding methods
CDex Support

Note: These settings require Lame 3.90 or later. Lame 3.90.3 found on this website is the recommended version (Check here to download)

Note: At a given bitrate range, the quality scale usually works to where VBR is higher quality than ABR which is higher quality than CBR (CBR < ABR < VBR in terms of quality). The exception to this is when you choose the highest possible CBR bitrate which is 320kbps. In the case of the named VBR profiles "standard" and "extreme" they are usually "effectively" equal in quality to high bitrate cbr, in the range of around 256 kbps due to their ability to scale down the bitrate when necessary but increase the bitrate beyond 256 kbps on a frame by frame basis also, when that is necessary.

Recommended encoder settings

--alt-preset standard (~190 kbit/s, typical 180 ... 220. Best quality / size ratio)

--alt-preset fast standard (~190 kbit/s, faster but potentially lower quality)

--alt-preset extreme (~250 kbit/s, typical 220 ... 270. Quality can be a little better than standard)

--alt-preset fast extreme (~250 kbit/s, faster but potentially lower quality)

--alt-preset insane (320 kbit/s CBR, highest possible quality, that can be a little higher than extreme)

For high quality on portable MP3 players, you may use --alt-preset standard -Y (around 160 kbit/s). -Y usually limits to 16 KHz, something you likely won't notice unless you have an exeptional hearing.

VBR (Variable bitrate) settings

VBR can be useful to get good quality from a specific quality level. Size is less predictable than with ABR, but the quality is usually better.

-V(number) where number is 0-10, 0 being highest quality, 10 being the lowest.

V0 is ~280kbs V1 is ~250kbs

ABR (average bitrate) settings

(128 kbit/s ABR: roughly the same filesize as 128 kbit/s CBR)

ABR Setting tuned from 320 kbit/s down to 80 kbit/s
- --alt-preset <bitrate>

Example: --alt-preset 200

128 kbit/s ABR
- -V5 --athaa-sensitivity 1 (when using >= LAME 3.96.1, for best results at 128kbps)
- --alt-preset 128

or (ff123's and Hans' suggestion: http://www.ff123.net/cbr128.html ):

--abr 128 -h --nspsytune --athtype 2 --lowpass 16 --ns-bass -8 --scale 0.93

CBR (constant bitrate) settings

CBR Setting tuned from 320 kbit/s down to 80 kbit/s
- --alt-preset cbr <bitrate>

Example: --alt-preset cbr 96

128 kbit/s CBR
- --alt-preset cbr 128

or (ff123's and Hans' suggestion: http://www.ff123.net/cbr128.html ):

-h --nspsytune --athtype 2 --lowpass 16 --ns-bass -8 --scale 0.93

note: --alt-preset cbr 320 is the exact same thing as --alt-preset insane

Additional reading

List of recommended LAME settings @ HydrogenAudio forum

LAME homepage