I have Krell Res 2's, Krell S-1000 pre/pro and Krell amps. I use the S1000 for my Dac fed by a Classe CDT-1 transport. I also have an Escient Fireball which plays music from the hard drive in lossless FLAC format. You would have to have pretty poor hearing to not hear the difference between the CDT-1 and the Fireball. On the other hand, it is nice to sit down in my listening chair and have every CD I own at my disposal w/o having to get up! That is the only reason I bought the Fireball, you can not beat that kind of easy access to your music collection.
Lossless is lossless on paper but when you sit and listen there is a huge difference. When it comes time to listen critically the 'lossless' player gets turned off and the CDT-1 takes over. The bass improves and the soundstage opens up among other improvements.