I don't think I saw anyone mention this, but as a business model this seems a little weird.
It does not appear that Pono wants to make their money selling players - they want to create a music ecosystem. So they're entering a niche market as a competitor. They don't expect everyone to buy their player....but the wildly-popular iOS devices won't play FLAC.
So let's say this becomes popular, even though the product people would actually buy looks (to me) ridiculous compared to a mass-market player like an iPod Touch, iPhone, or Galaxy S4.
Apple might respond to the demand by offering an update to iTunes Plus, now offering ALAC versions of existing library. I can't imagine that this would be hard, or that they don't already have this in the works. If they offered an "iTunes Match Pro" for $100/yr that would upgrade my tracks, I'd buy in. It would be vastly more convenient for the mass market (those using iTunes instead of Foobar, etc), and could probably kill Pono.
This would probably be a good thing for consumers, though - mass-market lossless audio - just bad for Pono.