How many albums does iPod Classic 160gb hold?

If you stick strictly to AAC 128 kb/s it will hold roughly 3,000 albums. I got this number by diving 40,000 songs (the number Apple says it will hold if in 128 kb/s) by 12 (The number of songs most albums commonly have). I got 3333.333... I think 3,000 albums is a very safe estimate since you'll most likely have albums that do not reach or exceed the "12 song" average.

At AAC 256 kb/s the number of songs/albums would simply be half of the AAC 128 kb/s numbers.

Obviously unless you're very strict about what format your music is in your number will fluctuate. I filled a 160GB Classic with music I had collected over time in various formats none exceeding 320kb/s in either AAC or MP3. The number of albums I could fit was around 2,000.

@128kb/s AAC 3,000*

@256kb/s AAC 1,500*

*Again these are rough but very safe estimates.