The only real problem with the Squeezebox Touch is that it can't just pull music from a DLNA or uPnP source. Instead it has to interface with server software. Ostensibly this means running Logitech's own Squeezebox Server on Windows, MacOS or Linux but actually a number of third party tools are available - a common one being Twonky media server. Some of these alternative Squeezebox servers run on NAS devices such as the ReadyNAS NVX (plus lesser models) and Linkstation Duo, so leaving a PC on constantly in order to use the Squeezebox Touch isn't a necessity.
The Squeezebox Touch itself can decode MP3, FLAC, WAV, AIFF, WMA, Ogg Vorbis, HE-AACv2, HD-AAC and Apple Lossless files. WMA Lossless, APE, MPC and WavPack files are supported with transcoding performed off-device, which means they may not be playable using third party servers, or if said servers are running on systems that can't handle particular file formats. For the most part, however, it's safe to say that the Squeezebox Touch will be able to handle any audio format you can throw at it.
In our testing that certainly proved to be the case. The Squeezebox Touch had no problems decoding 320kbps MP3, 256kbps AAC or even 24-bit/48KHz FLAC files (the latter courtesy the Bowers & Wilkins Society of Sound).
The internal DAC does its job as well as can be expected from a sub-£250 audio device. With good enough source material the Touch's output is delightfully clear and dynamic. Low quality files - say, Napster's 128kbps WMA - still sound, well, low quality, but they're good enough for casual listening. We found that even just passing the phono outputs through a valve amp helped smooth out the harshness resulting from the 'garbage in, garbage out' effect. But of course, if the on-board processing isn't up to your standards, you can invest in a dedicated DAC and amplifier set-up, using the Squeezebox Touch solely as a relay - and a mighty good one at that.
It's its flexibility that really sells the Squeezebox Touch and that makes its £235 asking price a steal. Only a Sonos system could better it for slickness and capability, but Sonos kit is significantly more expensive. Given the choice, we'd still go for the Sonos set-up because of the superior multi-room capabilities, but if you know you only want a stand-alone streaming-audio solution, the Squeezebox Touch is it.