Hey Teddy. Thanks for your response. I tried doing the conversion via MakeMKV as it has a FLAC converter built into it.
I also found that the WDTV Live does support FLAC audio in the .mkv container.
After doing the conversion, quite honestly, I can't tell a whole lot of difference between PCM converted to FLAC, and 640 kbps AC3 5.1, so I just decided to keep the AC3 tracks. I'm listening and comparing via VLC Media Player and I have a really good pair of headphones hooked up to the computer.
Thanks again for your quick reply. Maybe when I start working in the field I'm going to school for, I can save up and buy a couple of 3TB HDD's and do it all uncompressed, or build a little file server or something. I'll just have to find a good spot to store all my discs for the time being.