Mac mini for hosting music files?

I would keep the itunes library where it is and upgrading your music to apple lossless (ALAC) from the original CD sources if you still have them. The Airplay function on the AppleTV can streams audio at 48khz/16bit, which is slightly better than CD quality. So if you re-rip your CDs into itunes using Apple Lossless and stream to your AppleTV, you're getting the exact same audio output as you would if you had the mac mini hooked up directly.

Apple lossless is not tied to a particular bitrate - all it does is compress any audio file you throw at it without losing any information, so it works more like a zip file that is decompressed on the fly during playback. ALAC files ripped from CD are typically between 800-1000 kpbs, for example. You can also convert between lossless formats ALAC, FLAC, WAV, AIFF, etc. as much as you want without losing information, so you're not locked into ALAC if you decide to convert to FLAC down the road.

I wouldn't bother with FLAC right now if you're already using itunes, though. ALAC is not better or worse than FLAC, just a different standard. FLAC is a little more versatile on non-apple hardware at the moment, but ALAC works great on all modern apple devices and is gaining fast on FLAC on third party hardware. Anything that supports Airplay, like appletv, airport express, and a lot of newer receivers, also supports ALAC, for example. Getting FLAC to play nice with apple gear is a huge pain, and unnecessary in a lot of cases.

For the music you bought from itunes or don't have the CD anymore, you're stuck with that audio quality level for those files, but 256kbps is still pretty good, particularly if you bought it from an online store like itunes. I'd concentrate on trying to find used CD versions of your 128kbps music. For the cost of a mac mini, you can afford a lot of $5 CDs

Actually you should try Audirvana great software or wait for JRiver for Mac

Audirvana is really nice, but it may be overkill for what the OP wants to do. Airplay-based solutions do stop making sense once you get into high res audio, i.e., higher than 48khz/16bit, but it doesn't make sense to spend $600 on a new mac mini just to play HD audio if the rest of the system isn't equipped to take advantage of it. With his existing setup, he can get the digital CD signal into his receiver virtually untouched, which itself is a huge upgrade over the 128/256kbps lossy files he's using now.

jlpowell, what are you using in the rest of your system, i.e., receiver/speakers/etc.? Is it music only, or is it a surround sound AV setup? I presume the AppleTV is connected to the receiver by HDMI or optical and not analog? Whether you want to mess around with HD audio depends on where you want to go with your other system upgrades, but at least for now, I'd focus on getting as much CD quality music into your itunes library as you can and taking it from there.

Is that because you bought them from the iTunes Store, or because you ripped them from CDs that way? If the former, you can at small cost upgrade the 128 kbps ones to 256 kbps, which are not quite but very close to CD quality. If it's the latter, and you still have the CDs you can re-rip eveyrthing into Apple Lossless. Otherwise, you can either repurchase the songs in one form or another or live with what you've got.
No, it's better than that, but the files are also bigger. An ALAC (Apple Lossless) file is roughly half the size of a WAV (i.e., CD) file, though that can vary a lot.
No, but you can get third-party software that will convert FLAC to ALAC. Just Google "FLAC to ALAC."
It's not clear what problem(s) you're trying to solve here. Maybe you could be a bit more specific about what you're doing now and why you think you need something different.

Sort of, except for that last part. When the Apple Lossless file is decompressed, it is no longer an Apple Lossless file. It's uncompressed, exactly the same as a WAV or AIFF file (which are essentially the same as what's on a CD). Hope that's clear.
iTunes Match has nothing to do with Apple Lossless. If you want to stream from iCloud, what you stream is 256 kbps AAC. Period. It doesn't matter whether the file sitting on your hard drive is AIFF or WAV or Apple Lossless or 128 kbps MP3 or whatever. It streams from iCloud as 256 kbps AAC. Whereas if you are streaming from your own hard drive, then you get whatever quality you have saved on your hard drive--lossless or lossy.
Not in the sense I think you mean. If you take a CD, and compress it to AAC, that affects quality. If you compress it to Apple Lossless, that does not affect quality. In either case, once that's done, it's done. The decompression doesn't degrade things further.
Looks like you should be fine. The only question is whether you want to re-rip into Apple Lossless (or at least re-rip what's in 128 kbps now).

This stuff can be confusing. Feel free to keep asking questions.

Nope. Let's try again. If you have an Apple Lossless file on your hard drive, you can stream it to your Apple TV as a lossless file, and get CD-quality sound. iCloud and iTunes Match have nothing to do with that. They are constrained to 256 kbps, but you're not using them; you're streaming from your own computer, so you get whatever's on your own computer.
If you want to be able to stream CD-quality music, then yes.

You will be able to stream files from your new Mac Mini, which is Wifi enabled, to your Apple TV. Those files will play in what ever format you rip in them, like Apple lossless or AIFF (both are audio file formats that you will set your Mac Mini to automatically when ripping a CD). Then you will be able to play files in their current format just as you are today.

That's a nice setup for what you want to do. For upgrades down the road, just keep upgrading your speakers. Your AVR is already really good, and will last you a long time. I'd also look into some quality headphones, which are a relatively inexpensive way to get very high quality sound.

The real value in HD audio formats for me, though, is that these releases usually include a 5.1 mix, so if it only costs me a few bucks more for the SACD or DVDA version, no problem. They also tend to use the best master available, so the sound quality is almost always really good, but that tends to have far more to do with the quality of the master than the sampling rate or bit depth. 44.1khz/16bit is already at the upper limit of human hearing, so if the same master was used for the CD, which is often the case, the stereo mix on the SACD/DVDA is going to sound almost exactly like the CD, if not identical. On top of that, a lot of these discs are priced at $40 or more, which even with the surround mix is way too expensive when the CD is usually $10 or so.

I have a Mac Mini with an external hard drive connected via Firewire. All of my audio files are stored on the external and played through the Mac Mini. I have a second external hard drive that I back up to in case the first hard drive crashes.

SACD, DVD-A and Blu ray audio all support 5.1, and it's very common to include a surround mix, but it's title by title. The Surround Music Format forum on this board is a good resource for sorting through what's good and what's not.

The only HD disc I have that doesn't have surround is the blu ray audio version the new Stones greatest hits Grr. It's stereo only, but it has 49 songs in 96/24 all on one disc. I got it from the UK amazon store, and even with exchange rate and intl shipping, it was about $20, which is cheaper than the US 3-CD version.

I don't believe you can do that.

Each version is a separate title on the disc, and has a different set of data. There's enough space on these discs that a lot of releases have three or four versions of the same album. For example, you might get a 96/24 stereo version, separate 96/24 5.1 version. Again, it varies by release.

You can play 2.0 stereo in "surround" processing mode, but it's not true surround. The 2.0 mix has one left audio channel and one right. Modern receivers can take those channels and pull out different frequencies (such as pulling out vocals to send to the center channel) to simulate a surround mix, but it's not the same as using a discrete 5.1 mix. In a 5.1 mix, there are six channels of audio instead of 2: Left and right front, center, left and right surround, and subwoofer for the low frequencies. A good example is Hotel California from Eagles: Hell Freezes Over. The band used 4 guitars, and the engineer put each guitar in a different channel for the 5.1 mix. If you ran the 2 channel mix through your receiver in surround mode, you'd get music from all the speakers, but it wouldn't be able to reproduce that effect.

The bad news is that none of these formats rips directly into itunes. You need third party software to get it into a format that itunes can even read, and these programs are not nearly as user friendly as itunes. I've also had no luck getting my surround sound rips to play at all in itunes, so I use itunes for stereo music only. My solution for the moment is to just play the discs directly on my pioneer DVD or panasonic blu ray on my main system, since that's the only gear I have that can play them at full resolution anyway. For all my portable gear, I put downsampled 48/16 rips of the stereo mixes into itunes, which is the best quality my iphone will output anyway and it keeps the file sizes down.

Before you get any 5.1 discs make sure you have the hardware to play them. SACD will only play on SACD equipped players, and DVD Audio only on DVD Audio players. There are some excellent universal players available, like Oppo for example.

Oppo is great. A cheaper option if you already have a good blu ray player is a universal DVD player like the pioneer 610av or a used oppo DVD player, also.

DVD-A will play in regular DVD players, too, just at lower quality, usually Dolby digital, but still a good way to test drive the format. Also, lots of Sony disc players (incl cd, DVD and bluray) have sacd capability since it was Sonys format.

You may phone Apple (1-800-692-7753) with questions regarding their equipment. Your purchase comes with initial customer support, I believe 90 days.
I have never worked with Apple TV, but like my Airport Express you should be able to locate your Apple TV when you search for network devices on the Mini, name it and then find it in AirPlay with an iOS device (iPhone, iPod or iPad) that you use to maneuver through iTunes.

Where, physically is the Mini located in relation to your system?
What iOS device do you use to maneuver through iTunes?

Load all your music into itunes on the mac mini, and keep itunes running. Make sure it's on the same wireless network as the appletv.

Go to the computers tab in your appletv and your should be able to find your mini. It will walk you through setup from there.

Has anyone ripped CDs into an Apple Time Capsule for playing on a Sonos system?

My main question is does Sonos recognize various bit rates ans what is the highest it will play?

up to 48kHz sampling @ 16bits on my ZP90, I use it for MP3 and Apple Lossless