After the MP3 has been through its reconstruction filters, etc, and with the complexity of the modern MP3 encoders, I wouldn't worry about FLAC vs. MP3, as they are going to be extremely similar. After all, assuming that the FLAC has been created from a 44.1kHz CD the extra accuracy is the detail of the wave every 441000th of a second. We can only hear the difference in lower quality MP3's because the 16/24bit value is limited by the xxxxkpbs, so the encoder compresses as best it can whilst maintaining as much audio quality. Noticed how VBR MP3's bitrate drops up and down, on 'simple' segments of the track, the bitrate falls to meet the V0, size, etc, contstraints.
Anyway...
Spend the money on better amplifing the headphone, speaker, etc. The better you can reproduce the reformed MP3 the better it will sound, regardless of the bitrate. Think of listening to FLAC through Apple crappy buds, vs. a 128k MP3 through Grado's..... an extreme situation yes, but at least proves where the easiest and most dramatic improvement can be made.
OP, in a word, YES, upgrade up to your point of diminishing returns!