I did some more research into the transporter/squeezebox/spidf issues. The following page has some pretty good info as well as additional links to pages that discuss jitter.
In short, each time you pass on the digital stream (via spdif or digital coax), you will be introducing jitter. Thus, even if you were dealing with FLAC and a soundcard that didn't mix and/or resample that sends the data to the receiver via spdif it wouldn't sound the same as if you played it directly on the receiver (networked receiver with decoder and built in DAC). Just to be clear, the digital data being received can be identical, yet due to jitter (syncronization and word clock issues), it won't be played the same.
So in answer to your original question, you are better off with the networked receiver that will decode the FLAC and use it's own DAC. Another solution which might be better, depending on budget and how descriminating your ears are, would be either a sqeezebox ($299), modified squeezebox (an analog modded SB with the Sonicap Platinum upgrade but without the Bybees and with an upgraded linear power supply - $600), or Transporter ($1999). From what I've read so far, if you do go with one of the squeezebox options you would be using analog out, otherwise you would still have to deal with jitter and it would still rely on the DAC in your receiver (thus why bother with the squeezebox if you have a networked receiver.)
http://www.lessloss.com/about.htmlhttp://www.stereophile.com/features/368/http://forums.slimdevices.com/showthread...red+transporter
