With regard to DSD please note that the unit resamples DSD to PCM. Since DSD files are quite large I would suggest converting DSD files to PCM FLAC for use on the machine using Foobar or the equivalent. That would save scarce memory card space
There is no official announcement of a FIIO X3 III. In my opinion, the M2 has it over the X3II when it comes to sound quaity. The X3II has some nice features unrelated to just sound. The X1 II from FIIO does have bluetooth. I have no experience with that unit, check the active FIIO forums. I did not care for the original X1 unlike the X3II which I do like (though not as much as the M2).
I find it funny that most comparisons of FLAC vs MP3 on You Tube use electronica as the source material.
Seems to me that well recorded classical or jazz when there are some real dynamics would be a much more appropriate test. Frankly with electronica or the like I would not expect to find much of an audible difference between compressed and uncompressed music. There are much more subtle harmonics that come into play with acoustic instruments.