You shouldn't notice a difference between the two formats in SQ if you are ripping from your CD collection. The source is the same and the format is loss-less. Any differences will come down to the player. FLAC is just more portable, so get ripping!
Now to storage....
As a guy with a network degree, I vote for 3 SATA drive RAID 5 and hot swap-able hdd cages with status lights for each drive. Data access speeds matter and if one drive fails it just keeps running. Just replace the one with the status light that is out. If done right there would be no need to even turn of the computer. It will rebuild the data on the fly. It wouldn't be that expensive and you can use 2.5 laptop drives with it and fit the entire array and cage in a single 5.25 bay. Just look at it occasionally.
Personally my old system, before MP3 players, involved taking the original CD, making a copy, storing the original, then making all further copies off the 1st gen copy. I had a stack of original CD's that had only been caressed by a laser a single time. Then a stack of first gen copies I used only to make further copies (only used in the computer), then the second gen copies that were listened to and occasionally stolen. I only really got annoyed if someone stole an original.
Ripping it to FLAC and storing the original and a copy of it seem simpler in comparison.
If you are really paranoid.....
Use a pair of rackmount servers running Linux configured in a failover cluster each configured as followed.
Dual redundant hot swappable power supplies
3 or more sata drives in hot-swappable cages with seperate status lights configured as a RAID 5 array
dual gigabit ethernet cards connected to seperate routers, just configure each of them to use a different IP range within your subnet.
Ideally these should be placed in a bomb shelter you will create under your house. With enough backup power to keep them and your precious backup media player safe for a long period of time. Just in case the world really does end on 12/15/2012.... With this set-up it would take multiple failures for the music to stop. The music must flow.
Quick overview of RAID
RAID 0 is an array with two or more drives in a striped array (twice as fast as a single drive)
RAID 1 is two or more drives in a mirrored array (same speed but twice as safe)
RAID 10 is two RAID 0 arrays placed into a RAID 1 array. (4 drive minimum, combination of the above)
RAID 5 is a three disk or more striped array using parity information spread across all drives. It can rebuild the information on the fly if a single drive fails. You only lose data if multiple drives fail. It is slower than RAID 0 at the same number of drives but faster than RAID 10.
RAID 50 would be two raid 5 arrays in a raid 0 configuration, which I've never seen.
Edit: Of course you should still burn backup discs.... what if your collection of CD's gets destroyed and then your server/s gets hit by an electromagnetic pulse....
optical discs will keep it safe. 
Edited by cheapfi - 11/6/12 at 7:43pm