The ipod connection interfaces the MDI with an ipod, this will support whatever the ipod will support. If the ipod can support lossless format then it is good to go.
The USB connection for MDI will support mass storage and afaik, will only allow mp3 to play
The Aux input would work with whatever device you have with stereo out. If you have a portable player that can do flac then this is your best bet.