Transcoding or PS3 problem?

[simoncn]

As a test, I suggest you start with a CD-quality file and try transcoding it using flac/wav or flac/L16. Do either or both of these play on the PS3?

The .flac extension when browsing doesn't mean that the files are being streamed in FLAC format. You can check the streaming format by using the same settings to stream to the Sneaky DS and check what Kinsky displays for the stream format. Note that the Sneaky DS doesn't support L16 but does support WAV.