I don't know if there's a general FAQ but I don't mind answering questions.
ASIO is Steinberg's professional audio interface spec. Basically, back in the day there' wasn't a good API for pro soundcards so Steinberg developed one. It provides low latency, no-frills access to all a soundcard's inputs and outputs. Though OSes do that natively now (WDM KS in Windows, CoreAudio on Mac) ASIO has become a real standard and nearly all pro cards and apps support it. In relation to the X-Fi, when you set the X-Fi to creation mode, which makes ASIO available, and use ASIO, you can be gaurenteed that the sound input or output it bit accurate.
Now as to if that gives you the BEST sound, well that's subjective. Best and accurate are two different things. I personally find that the best sound, on my system, comes from using CMMS (a feature the X-Fi has in entertainment and game modes) to upmix stereo signals to all 4 speakers. This is not accurate playback, however it sounds good. I switch to a different mode if I'm doing recording to get accurate sound.
When it comes to good sound, Duke Ellington said it best: "If it sounds good it IS good." It's all about what YOU like. Don't let some audiophile snob tell you that you need to listen to sound in some certian way to get the "pure" sound. You listen to it how you want to get the sound you like.
EQs are a personal choice. I don't like them much, but then I have a reasonably good setup. You set the EQ how it makes you happy. The X-Fi has a built-in global EQ you can use. If I EQ things, I personally use the Waves Linear Phase EQ, but that's a pro plugin, and you don't really want to know the cost.
For compressed formats, depends on what you are going for. FLAC is a lossless encoder. That means that it is the same quality as uncompressed audio, just smaller. It is a pure mathematical compression so that the signal is recreated exactly. However, it only compresses maybe 2:1 at best, and there's no way to make it better.
For lossy stereo music I like OGG Vorbis. It's free and sounds good. Winamp supports it, and you can install free codecs to make Media Player and such support it too. Like MP3, it's lossy and you can control the quality. I find that 256k is overkill, and is still 5:1 compression or so.
For lossy multi-channel, I like Windows Media Audio or DTS. WMA is again free and sounds good per bit. DTS sounds great, but it's real large and the encoder is expensive.
If you are talking about ripping CDs, there are two considerations:
1) How much space do you have?
2) Do you want to use the files with a portable?
If you want to use the files with a portable, go MP3 and use LAME. MP3 is old and not great quality per bit, but all portables support it. 192kbit gives very good sound and 256kbit is essentially CD quality with most music.
If size is important, but you aren't going portable, use OGG. Pick a quality setting that sounds good to you. Quality 4 (128k nominal bitrate) sounds pretty good. Quality 8 (256k nominal) is nice and overkill, even works well for 24-bit sources.
If you've space to burn, just go with FLAC and call it good. It's a waste, but hey, that way you never need to worry if in the future you get better gear, since your files will be an orignal copy.