I’m in a similar boat to you. I ripped almost all of my CDs to 320kbps mp3s for portability, but then I wanted to put all of them (a substantial number) plus a bunch more (my partner’s collection) on a physically tiny USB stick (that I already had) to just leave plugged into our car stereo’s spare port. I had to shrink the files somehow to make them all fit, so I used ffmpeg and a little bash file logic to keep the files as mp3s, but reduce the bitrate.
128kbps mp3 is passable for most music, which is why the commercial industry focused on it in the early days. However, if your music has much “dirty” sound in it, like loud drums and cymbals or overdriven electric guitars, 128kbps tends to alias them somewhat and make them sound weird. If you stick to mp3 I’d recommend at least 160kbps, or better, 192kbps. If you can use variable bit rate, that can be even better.
Of course, even 320kbps mp3 isn’t going to satisfy audiophiles, but it sounds like you just want to have all your music with you at all times as a better alternative to radio, and your storage space is limited, similar to me.
As regards transcoding, you may run into some aliasing issues if you try to switch from one codec to another without also dropping a considerable amount of detail. But unless I’ve misunderstood how most lossy audio compression works, taking an mp3 from a higher to a lower bitrate isn’t transcoding, and should give you the same result as encoding the original lossless source at the lower bitrate. Psychoacoustic models split a sound source into thousands of tiny component sounds, and keep only the top X “most important” components. If you later reduce that to the top Y most important components by reducing the bitrate (while using the same codec), shouldn’t that be the same as just taking the top Y most important components from the original, full group?
I would also probably try to plug USB drives in once a year or so if I were being diligent, but in reality I recently found a handful of USB flash drives that I’d stored in a box in my parents’ unattached garage, and every one of them could be read completely without any issues. They ran the gamut of build quality from expensive, name-brand drives to no-name dollar-store keychains. They’d been sitting in that box, untouched, for a little over nine years, and I’m pretty sure that some of them hadn’t been used for several years even before that.
I wouldn’t rely on it for critical data, but USB flash might not be so terrible.