Please enable at least basic auth (Use authentication without SSL) If you can connect from outside your network with a browser, client should work too. Start a stream and use the "Check accessibility from the internet" -button. If it says everything is fine, everything should be fine. With basic auth you should store the username/password to device with gconf so you don't have to type them every freaking time. See wiki for that.
Maybe VLC can't transcode flac to certain formats. You can edit the profiles and try different audio codecs: http://wiki.videolan.org/Codec If passthrough works it means gstreamer can play flac so have you tried to transcode flac to flac, just lower the quality?