yes, definitely use the "alternate 24-bit format" in CD Wave.
and regarding 24 bit FLAC files and the LMA. The latest version of FLAC is v1.2.1. the LMA still uses v1.1.x (I forget exactly what they use). To sum up, the most recent version of FLAC that is compatible with the LMA is v1.1.4.
you say you're using Flac Frontend 1.7, but that doesn't really tell us which version of FLAC the udnerlying code uses. When you encode, a little DOS window should pop up, and you can see which FLAC version you have in that DOS window.