I am running Lion on an iMac and am using SBS7.7 I keep my FLAC music in a separate folder on the Mac. I show it under media folders on the SBS library page and leave a checkmark beside iTunes as well. SBS scans both and Touch shows the FLACs in a separate folder under My Music. Max, http://sbooth.org/Max/ is another program that can convert FLAC to ALAC.
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