Couple points of clarification, yes the Karma comes with a CD, but in reality it is best to go to
www.rioaudio.com and download the newest versions of the software and the firmware. In fact you can download the software now and play around with it. I have found it to be one of the better 1st party pieces of software available and is very plain and simple. It will rip and encode to any format (wma, ogg, flac, mp3, etc) and it does a decent job of mass-tagging (although there are many more powerful programs out there).
Yes the Karma does have an ethernet port which is handy for streaming music using riostreamer. Also, the ethernet port allows the Karma to be accessed by any computer with support for Java: *nix, Mac, et al. The speeds are not quite 100mbps, but still significantly faster than USB1.1 if that is an issue. Further, There is USB2 support on the dock and the player itself.
Finally, I do agree that in most cases it would be difficult to tell the difference with Flac in a portable environment; however, you may want to look at dbPowerAmp, EZCDDA, or RioRad from Redchair, all of which will allow you to transcode from FLAC to ogg/wma/mp3 etc. Since FLAC is lossless there will be no compression 'hit' going from one format to another.
Currently, the Karma does not support USB mass storage, however, the Rio Development team has informed us that it is in the works, and on the way. One of the nice things is that the Rio staff has promised that while it may take a little longer to do the USB MSC implementation, they are doing it 'right'. It will still be an ID3 based database, but will be seamlessly integrated. From my understanding with the iPod, iRiver etc, if you go to add a file through MSC, either it is unaccessible for play immeadiately (iPod) or it is not available in 'tag format database' and the database tags a long time to load (iRiver, although still a great player) In the interim, there are java and win32 apps (Rio Taxi) etc that allow you to upload and move files from the Karma back and forth to another computer.
I think the 'support' from the developers is almost reason enough to go with the Karma, if you go to
www.forums-riovolution.com you will find that there are quite a few Rio Developers/Engineers etc that post there regularly and help on their OWN FREE TIME with anything that isn't covered under NDA.