The quick answer--to a question you did not ask--is that flac and DACs get along just fine.
Now to the question that you
did ask... I had been using the Squeezebox in precisely that manner for many years, since it includes a pretty decent little DAC (all things con$idered), and the RCA outputs from the squeezebox would go straight into the preamp; you could conceivably skip the preamp and use the digital volume control to go straight into an amp, but this method of attenuation is done by manipulating the 0s and 1s and it is lossier and lossier as you decrease the volume so that if you attenuate below 50%, you might as well start listening to mp3s. Naturally, things got noticeably better when I put its digital output through one of Frank's DACs (by comparison, I barely noticed a difference when I used a dacmagic). My strongly-felt suspicion is that Frank's buddies at planet Klaxxon have teleported him a kick-ass output stage to sit between the dac chip and the RCA posts and that's how the man makes the biggest difference, but he's not fessing up to anything so all I can do is speculate... now what did I hear? Greater clarity, truer ambience, richer texture, far more musical sound. I could have lived without the DAC since the squeezebox sounded great by itself; but now that I've gotten used to the DAC, there's no going back. You have been warned.
I am not familiar with the portable devices out there, but I hear that flac support is not so easy to come by with them--it's available, but you have to seek it out and you may have to hack your device (which is OK since you own your own devices). You can assume that if it is made by Apple, it will not ship with flac support (more on that below).
As to what's going on with flac... the bits on the hard drive are encoded with, say, flac; the gadget in question has to decode that on-the-fly into the usual 1s and 0s (a la CD players) that a DAC expects as input. The same flowchart applies to any other lossless format.
Some devices support all the major lossless formats (squeezebox and sonos come to mind). Others do not (anything by Apple does not support flac, and it's not likely it ever will since Apple intentionally took out flac support from iTunes around version 3.something; I don't think the Zune supports flac either).
My squeezebox processes flac "natively", meaning that the decoder takes flac straight into the output format; other formats may be decoded into flac first, and then into the output format. Some formats may not be decodable at all due to copy protection (more on that in a bit). If you see the letters "DRM" around, you know that's what you are dealing with there and I would recommend that you avoid it altogether.
Lossless is lossless and that very much applies to flac, wav, aiff, ape, ogg, etc. ... and in some circumstances, m4a (sometimes this one is actually lossy, but that's because of filename conventions and not the fault of the algorithm, i.e. they named the lossy output m4a as well). The obvious difference with flac is that the code is open source and free wrt distribution, so it cannot be made obsolete by the decisions of anyone one group or business. The other formats may either now or in the future require a license to use, or they may permit copy protection--this is what you may end up with when you buy songs from the Apple store.
In terms of compression, they all achieve the same compression within 5-10% of file size. There are small differences in how much work needs to be done by the cpu to handle any of them, and the entry-level computers that have been coming out since, say, intel dual core onwards are all able to handle this task without any trouble. If you do not have significant compression (e.g. aiff) then the load on your ethernet network will double, but if you are doing better than 10 Mbps there, that's not really much of an issue. Nonetheless, don't be surprised if any of these devices work better when using a hardwire ethernet connection than over the wireless--that's just the lay of the land, I guess.
In terms of sound quality, all of them should be the same when the decoded output goes into the DAC.
Tags are another issue, namely, how information
about the music is included with the music itself. flac files carry the tags along with the musical information, so that if you misplace the track and it ends up in the wrong directory, you can still figure out the artist, album title, etc. I don't think the same applies to all other formats, however. Most people don't pay attention to this kind of stuff but if your collection starts to head towards more than a thousand albums then you will discover it all on your own, I'm sure. The operative phrase there is "needle in a haystack".
So to sum up, the biggest difference among lossless formats is licensing, copy-protection, organization, and long-term concerns along such lines. If you clear those hurdles, then your computer and your dac should be happy with any of them.
