Personal Use FLAC Streaming Solutions?

Kulaid982 asks: "A friend of mine has challenged me to put together an internet music server for him. Ideally he'd like to stream music from his apartment to work. I'm aware of mod_mp3 for Apache, and Shoutcast seems to be a great streaming option, however, most of his music is FLAC or WAV. Obviously, .wav files are only streamable over the fastest networks, so is there an option for on the fly encoding to MP3 or FLAC to stream it? This will be a dedicated music-streaming box for his own personal use. I'm sure someone out there has already done this or something similar, so please share; how'd you pull it off?"

"Some technical specifics: The box is a P3 800 with 512MB of RAM, so I'm thinking Linux over Windows; his internet connection is 3 Mbps down, 256kbps up; and his collection is ~400GB, and is a mix of WAV, FLAC, and SHN (SHORTEN) formats."