I think it does now, or am I reading this wrong
From their web site:
Enjoy superior sound quality—Squeezebox2 features a high fidelity 24-bit Burr-Brown™ DAC, legendary in the audiophile community for their clean output and ultra-low distortion characteristics. Digital optical, coax, and analog connectors can plug into any home theater, stereo or amplified speakers.
And:
Listen to more audio formats—With support for MP3, WAV, FLAC, WMA, AAC, and Ogg Vorbis, Squeezebox2 handles all of today's leading and emerging formats without sacrificing audio quality. With built-in support for lossless compression technology (FLAC) and "pure software" SlimDSP™ architecture, your hardware investment is protected against technical obsolescence.