Every time I've made an improvement or upgrade in my system, the sound improved across the board - including mp3 files each time. The mp3s still sounded like mp3s relative to FLAC, but they sounded better than they did before just as FLAC sounded better than they did before.
If you are only willing to do one or the other, I'm guessing that the improvement gained from using a decent DAC will be greater than the improvement gained from switching to FLAC. Whether or not the improvement is worth it will depend on the DAC and your ears.
If you are only willing to do one or the other, I'm guessing that the improvement gained from using a decent DAC will be greater than the improvement gained from switching to FLAC. Whether or not the improvement is worth it will depend on the DAC and your ears.