The HK system can indeed read FLAC files directly from a flash drive. And in my opinion, there is a difference in the sound that can be heard over MP3. I think it is easy to hear if the car is stationary and no road noise is getting in the way. Once in motion, the differences can still be heard, but it is not nearly as obvious.
Like others have mentioned, I use EAC to rip files directly from CDs as FLAC files. I then copy them to a 32 GB flash drive. I probably have 10-12 albums so far, so I have not nearly filled up the flash drive.
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2015 M235i
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