I start with web size images that are the same resolution as the native display
(480x320 @ 163ppi). That way you are in control of the image and not iTunes. It will also do a pretty good job with my 'standard' online portfolio size which is 700x525 @ 72ppi. I've not tried to let it resize full size images. sRGB color space seems to do the best, but because it runs OS X, you should be able to use aRGB also (not that display has that gamut capability...)
I'm guessing you're giving it much larger images to downsize.