Am I wrong in understanding that if you rip as an MP3, you're already losing something? So if you encode to FLAC from that, you're starting with a faulty file?
That is correct. Lossy is lossy. You cannot regain something that has been lost.
You want to go into Max' prefs and make sure that you're using Apple Lossless, FLAC, or Monkey's Audio as your output format. Once you've got a lossless file to start with, you can then have Max or any number of other programs convert it down to a lossy MP3 or AAC file.
I started with Monkey's Audio years and years ago, then moved over to FLAC because it was gaining a larger following, but have since switched to Apple Lossless. If you have a Mac, an iPod, or Apple TV, there is really no reason to go with FLAC when Apple Lossless is what is supported. File sizes are fairly close, so any difference between Apple Lossless and FLAC is rendered worthless when you realize 500 GB hard drives cost all of $100 these days. Apple Lossless also encodes much faster for me than Monkey's Audio or FLAC ever did. But maybe that's because of my Dual-Core Xeon Mac Pro!
iTunes is a free download for Windows users, too, so going with Apple Lossless does not lock out sharing files with them. Windows users can also use dBpoweramp to easily convert between various formats. As lossless is exactly that, you can convert a lossless file back and forth between Apple Lossless, FLAC, Monkey's Audio, etc., etc., and it will still be exactly the same as the original WAV file.
I actually boot into Windows Vista and use dBpoweramp Music Converter to rip my CDs, compare results with the AccurateRip database, grab tags from All Music Guide, and encode to Apple Lossless, all in one fell swoop. I used to use EAC, but tests have shown dBpoweramp Music Converter to be even more accurate, and having everything fully automated (I used to visit All Music Guide for help with tagging my files anyway) is the cat's meow.
On the Net:
dBpoweramp
http://www.dbpoweramp.com/
All Music Guide
http://www.allmusic.com/