The primary source in my main system is a Turtle Beach Audiotron streamer (a few years old now and one of the first, but it has the advantage of not requiring any software on whatever's sharing the files). All music is stored on a 400GB RAID file system on a *nix box, shared out by Samba.
The Audiotron feeds an Arcam AVR360 which is driving a set of Monitor Audio RX6s (with RX Centre and RXFXs for 7.1 surround material). Yes, I'm aware that the Arcam has on-board streaming, but this uses DLNA which needs server-side software, the user interface needs the TV on to work properly, etc etc. The Audiotron is just nicer to use, and an SPDIF connection to the Arcam sounds just as good as the internal streamer. (I previously had an AVR250, hence the Audiotron.)
If I want to play a CD on this system I can either stick it in the Blu-Ray player (Denon DBT-1713) or the CD recorder (Sony RCD-W100), both of which are connected digitally to the AV receiver (HDMI for the BD player and SPDIF for the CD recorder).
The second system has the digital out from the PC hooked to an Audio Alchemy DAC-in-the-box, feeding a Yamaha DSP-A592 amplifier running in 2-channel mode and driving a set of Mission 760iSE speakers. No CD player exists in this system, although technically I could play an audio CD in the CD-ROM drive and send the output to the SPDIF. (The analogue out on the PC drives a pair of Altec Lansing PC speakers for the system sounds only - Winamp routes to the SPDIF.)
As for the FLAC v MP3 argument, I won't go into that here any more than to say that I use MP3 almost exclusively, but at very high bitrates with a particular set of options to LAME, which at worst will be indistinguishable from the original WAV or FLAC (on top-notch equipment), and may even sound better (on cheaper equipment, by removing inaudible signals it actually lowers the noise floor of the recording, meaning that a cheaper amplifier won't be wasting power amplifying a signal that you can't hear at the expense of what you can hear).