Sqeezebox 3, Apple Lossless or FLAC?

I have just ordered a Squeezebox 3 and wanted some advise how best to set it up. I am proposing to use iTunes on an iMac laptop and a Wi-Fi connection. What is the best way, in your opinion, to rip CD files, Apple Lossless or FLAC? What is, in your opinion, the best way to connect it to my processor (Krell HTS 7.1), RCA or digital? Any other advise you can offer on the set-up would be much appreciated.
Since you're planning on using iTunes as your server to the Squeezebox, then Apple Lossless will be best since iTunes doesn't support FLAC natively. As long as you stick with a lossless format (either Apple Lossless or FLAC) you can convert from one to the other relatively painlessly down the road. (Look into an application called Max for the Mac that lets you do that conversion.)

The downside to Apple Lossless is that a Squeezebox is able to natively decode FLAC in hardware, thus reducing the burden on your laptop. Apple Lossless files need to be decoded on the computer, and then sent to the Squeezebox. FLAC also works on a wider variety of platforms. For instance, I use Slimserver on Linux with FLAC files and it works great. There is no iTunes for Linux, so FLAC works best for me in this situation.

I hope that helps.

Do you have a iMac or Laptop?

Digital for sure on the cables based on other audiophiles systems I auditioned.

FLAC for better storage management of files.

Think about using LaCie 500 GB or 1TB Networked Access Drive to free space on iMac for applications.

Leaning toward the Transporter but still have a couple of more things to research.
Seconding Sufentanil.

Especially if you are a newb, use Apple Lossless in iTunes - don't even spend a second fretting about what you are missing. You are buying into one of Apple's premiere products supported by a top staff of developers etc.

Probably the easiest thing is to A/B the audio and the SPDIF out. All things being equal (which they never are) I would expect that the SPDIF will sound better.

Note that either and or both the analog and digital outputs of the SB3 can be improved with an upgraded power supply or modding. Bolder Cable is the recognized leader, take a gander at his site.

Squeezebox3 Article
You should be using uncompressed AIFF to take compression out of the sound equation--PERIOD.

If you have to choose between those two, FLAC sounds more like the original to my ears. Apple Lossless always sounds like something is missing to me.
Flac is also Squeezebox/Transporters native format.