By default they are sent as flac files and converted by the SB on the fly. Some folks (and I am one of them) are of the opinion that it sounds better if they are converted to wav files prior to being sent to the SB.
There is a File Types (I think) option under the server settings in the web UI. There is a list of file types with check boxes next to them. I believe FLAC has three entries. Clear all of the check boxes for FLAC except the one that says WAV in the right hand column. Note I am typing this from memory so it might be slightly off but I'm pretty sure it's correct.
Scrolling further down the page you will find three checkboxs for WAV. Clear the first one which shows WAV -> FLAC. You don't want it converting WAV's to FLAC before streaming, which it does by default.
You don't have to stop and restart the server. You do have to stop playing the current song and start it over (assuming one is playing). In Windows the way to see if this is working is to look for flac.exe in the task manager. If you see it while a flac is playing, it's working.
Mike