Agree. I started using Spotify to have music to listen to in work, without having to spend time choosing music to go on my iPhone / iPod, find I'm not in the mood for anything I've synced, or the effort of streaming from my home network. Over time I've been using it more and more even to listen to music at home which I already have as MP3.
I've still bought a few of my favourite tracks and albums (through iTunes) but my 14 year old MP3 collection running to hundreds of GB has hardly been touched for a while now. Of course, my CDs just sit taking up space on shelves. I've considered eBaying the lot - which would have been unthinkable a few years ago.
As for the format question, I'm not really a fan of flac. I've not really been able to hear the different between it and good quality MP3, and while disk space is cheap it's not free - especially if you want to run RAID and have reliable backups. On top of that, I got sucked into the iTunes world (life is honestly so much better) and iTunes won't play flac.