I in fact started to use FLAC just last night, in experimentation to see if I can tell the difference (in my headphones I think i can, and when the cable guy leaves I'll test it on the Axioms).
iTunes will let you use FLAC using Fluke, but I also suspect ATV won't recognize it, because in using my ipod touch as a remote it won't recognize the files from a list. If i start an album, then the remote can navigate through it just fine, but only shows the current song in the playlist. A little odd.
Just thought I'd put my experience out there. Internally on iTunes it works like a charm though.
