I'm still a newbie on this site still despite I've shared my experiences with the Nuforce Icon HDP, Schiit Bifrost, and M2Tech Hiface 2 to connect my laptop to my home system.
Question 1) Answer-Hiface 2 will transfer the native level without upsampling, so you can set your PC soundcard at the highest setting your DAC can decode and your DAC should decode your digital stream at native signal level, so you FLAC material will be at 16/44.1 when decoded by your DAC, unless it performs updampling.
Qusetion 2) Answer-From my limited experience as well as from what I have read, I would concur that you will probably like the results of your PC music through Coax into your DAC converted with a product like Hiface 2 over just using a USB cable to your DAC. Other considerations include what other sources you need to connect to your DAC as well, (not too many of them have multiple coax inputs, with switchable inputs). I'd A/B a dsic played from your PC via USB to the DAC against say a dedicated disc player feeding its coax stream to your DAC.
Do your comparison with a decent USB cable. If you like the USB-DAC fed sound, can use your computer for other tasks while listening without sound errors, your DAC's coax input is already used by a dedicated source, get a better USB cable and be happy with USB. If unhappy with the sound or you get clocking issues while doing other tasks on the computer while listening, by all means give a USB converter like the Hiface 2 a shot. I'd have a tough time buying a DAC with USB input without hearing the perfomance and making sure it didn't have any issues while using my laptop with other aps. The fact that Hiface 2 did well means you can probably buy a DAC for its chipset processing prowess and if it doesn't have USB, you win by using Hiface 2 over a unit with a not-so-impresive USB section.