Converting higher bit rate songs to 128 kbps AAC?

I have a 16 GB iPhone 4S but I do not have the recently updated software. To add more space to my phone I was going to change my music to the 128 kbps. Whenever I check the box on the summary tab on iTunes, nothing happens. Are there some other steps to enable this feature?

Also if you have any ides on how to free up more space on my phone that would also be appreciated!

After you press it make sure you resync your phone it does it all during the sync process