Start by saying I didn't read the karma review so carefully posted earlier, I'll just start writing my own:
I'm sitting here listening to some music on my Rio Karma while looking through it's manual. Yeah, it does support FLAC, along with MP3, Ogg Vorbis, and WMA.
So far I love this thing, it's yet to disappoint me. It came preloaded with a small selection (like 26) of songs and a bit of a battery charge. The preloadeds weren't half bad either, some have become frequents in my playlists. Also, the thumbstick (or the RIO Stick as they like to call it) isn't too bad. Navigation is easy, but if you keep the karma in your pocket, you'll find yourself using the hold switch alot, since sliding your hand in your pocket can easy toggle the stick. The karma is easy to walk around with and use one handed, too. Another cool thing is the base station, which has RCA output for connecting straight to a stereo and a spiffy blue light that has a variety of settings (including pulse to music).
The only downside is the carry-pouch or whatever that comes with it. I find it useless as a Karma carrier, and have instead started using it as a coaster on my desk (at which it excels).
Feel free to send a PM with any questions (relating to the karma).