I used to have all my CDs in wav, then I discovered flac and being lossless it is fine as @sarathchandars said above and the disk space use was a lot less. OK for conversion too as it is lossless. I have a large collection (11,000 tracks and growing). To ensure faithful conversion, I use Exact Audio Copy for ripping the CDs as it handles any hardware issues, especially at begin and end of tracks. My library is managed by mediamonkey which I have found works well for me in keeping tags and CD images in order. I then use the mediamonkey convert process to convert flac to MP3 or ipod formats for my mobile devices as required. Mediamonkey keeps them in sync too.
As for the DAC, if you prefer the Audiolab unit, then the toslink works fine with the Slice. I tested toslink but I prefer my analogue out connection to my amp as the DAC is not an audiophile one, just a home cinema amp device. I do use high quality and very short interconnects from Slice analogue to amp.
have you tried the analogue out with a high quality interconnect? I would be interested in what you think as the DAC in the Slice is a good one.
As you may gather, I tend to use my Slice mainly for audio with a little (a few box sets) video.
Hope this helps