MP3s are lossy. If you transcode a 320 MP3 to 128, it will most certainly get smaller. I'm not saying you aren't right, frankly I don't know, but that explanation, if correct, is flawed.
I never said a lossy file could't be made smaller by making it *lossier*.
But FLAC , of course, is lossless, so it can't make a file smaller that way.
With FLAC you have two issues. One, it only works on PCM (wav) sources , so you can't directly encode a DTS file to FLAC. Either you have to decode DTS to PCM first, then re-compress it with FLAC, or you have to 'trick' FLAC into thinking the file is a PCM .wav file (even of the audio data aren't).
Two, lossy encoding (DTS included) have already shrunk the original PCM .wav audio file size more than even the most aggressive FLAC (-v 8) can.
So, if you decode DTS to PCM (which inflates the file size) then losslessly re-compress with FLAC, you aren't going to get it down to a smaller size than the original, far more drastic loss incurred by the initial PCM-->DTS encoding.
Alternately , if you do the 'trick' I do (wrap DTS data with WAV indicator data) then (AIUI) there's really nothing for FLAC to compress, except that WAV header data, so the size change is marginal (and if you add tag data to the FLAC file, you are slightly increasing file size).
For a fact, every such conversion I can recall looking at, over a span of years now, has always been as large or larger than the original DTS file.