As I said, I have connected my usb external drive to the Stream, and they are all WAV and FLAC. They all sound great, but that is more about my DAC vs the streamer. There is nothing wrong with 16/44. That is CD quality, and if a DAC/system is up to it, it can sound very very good.
Not sure I understand why anyone would be concerned about file options on a flash drive to be honest.
90% plus of my listening is on vinyl. When I stream I almost always do it via the internet/WiFi which allows various file formats if offered. That is why I have a ’streamer’. I would think most folks purchasing a streamer would be most concerned about internet streaming via the internet.
If it is a concern for you, look at something else. but I do not see it as a negative for the iFi Zen Stream overall, at all.