iTunes cannot convert Apple Lossless tracks to 128 kbps AAC files when sync'ing with iPhone

Solution 1:

I had a similar problem with few of my tracks. The conversion is done live, while syncing. Basicly the problem is with the particular sound track, not the lossless codec (ALAC) itself. I used a third party utility to re-encode the original (keeping it to ALAC) and then iTunes managed to re-encode the track back to 128kBit AAC. Hope this helps.

Does iTunes maintain a parallel, down-sampled, library on disk when I check this option?

No - re-encoding is done live, that's why it's so slow.

Solution 2:

I just had this problem too, and it fixed itself when:

1. I went to the Music/Songs view and searched for the offending song.
2. I noticed there were 2 copies of that song listed: one in my library, and one with an iTunes-Store download icon next to it
3. I clicked on that download icon and deleted the copy in my library.

Upon re-syncing my iPhone, that song copied without issue.