It's already compatible with FLAC tracks. Both MP3, WAV and FLAC already work (on emulation). If you have a FLAC track in hand, you can do the following:
- drop it in the game's folder together with the other tracks. Rename cdaudio_track_6.mp3 to track_6_original.mp3 or something else to keep it.
- Rename your new FLAC track to cdaudio_track_6.flac and edit the .CUE file (with Notepad or similar) to reflect the picture below. Save and test (track 6 is actually the intro). The whole track list (track names and what they are) can be found here.
- About the real console, the burner software is key. The CD32 supports only Redbook CD tracks: MP3, WAV and FLAC are converted to Redbook when burned to disc. So, if your burner software supports FLAC, it should burn to Redbook and works.