Raghu Sir,
Thanks for the Advice, Possibly I would take route 1 first and route 2 Later. FLAC's are not much impressive whistle comparing to the Physical CD playing the same track in my current Set-up .
As RegeHA pointed out USB medium might add some minimal noise to the music,which is completely bypassed in CD.
My experience has been somewhat different. FLACs created by my own rips sound the same. But I am no spring chicken, so it may be my lead ears.
Just curious when you compare, are both CD and FLAC being played from the same PC/SW Player and by extension, the same USB/SPDIF out?
Cheers,
Raghu