From everything I've seen, it does support flac (including the info from the newegg link you provided).
Too bad about Jim's reliability reports. It looks interesting. Seems like the new upgraded version, WD TV Live, supports an ethernet connection, including a connection to a wireless ethernet hub. Looks like it could be a cheaper solution than the squeezebox if you have a tv close by and don't mind using your tv as your music interface.
Anyway, I don't know that I'd want it for audio files since I already have a squeezebox, but it does have me wondering about using it for HT video.
Looks interesting - with a nice price point too.
And as you mentioned, it lists FLAC as supported:
Media Formats
Video – AVI (Xvid, MPEG1/2/4), MPG/MPEG, VOB, MP4/MOV (MPEG4), RM or RMVB 8/9/10
Image – JPEG, GIF, TIFF, BMP, PNG
Audio – MP3, WAV/PCM/LPCM, WMA, AAC,
FLAC, MKA, OGG, Real Audio, APE
Playlist – PLS, M3U, WPL
Subtitle – SRT, SSA, SUB, SMI