All right @Marplot and @LuvMyQuad,
5.1 playing through decoder: Tried a 24/96 file as it comes and the decoder sounded like a little lag, like too big but played in surround, clearly.
Tried 24/48 with 6 compression, again played well but something not quite right.
Tried 24/48 with 0 compression, perfect, the winner. USB FAT32. 32 Gig.
someone else may versed in flac may be able to address this, but I wonder if that lag isn't due to the flac having to be decompressed on the fly as it plays. It sounds like isn't really that it can't play compressed flac, but that you don't want to because of the extra processing required.