Don't use shn. It is lossless, but its tagging features are outdated compared to APE or FLAC.
With any true lossless format, the audio quality will be exactly what you started with, no better or worse. If you are starting with CDs, WAV files are an exact copy of the CD data, while lossless (APE, FLAC, WMA (lossless)) is the same data written more efficiently, but still the exact data, and therefore the exact audio.
Lossy formats, mp3, wma (lossy), etc, try to preserve as much of the original audio as they can, while giving you dramatically smaller files. A lossless file might be around 60% of the original size, while a lossy file might be around 10%. And the audio quality is quite good. But the audio is changed permanently with lossy formats, while lossless can go back to the original WAV without and degredation.
I prefer FLACs. It's an open-source standard and it is designed for a lightweight CPU burden on playback. That is its main feature, which makes it the choice for embedded audio systems where CPU cycles are at a premium, or for computers like mine, which are old and heavily-used.
APE was written by jriver's own Matt, and is in wide use for lossless audio. It offers certain tagging features found no where else, and most people here are very enthusiastic about it. Someone will no doubt post examples of those features.
For me it came down to a choice between APE and FLAC. APE has better support within MC, while FLAC uses third-party plugins within MC. You could choose either one and be very happy, and still have the option of converting to the other or back to your original WAV. With lossy, once you convert it its done.
As for "working around MC", I suggested this because Danrien has some potentially problematic FLAC files. Rather than go through version upgrading of the FLAC plugin for troubleshooting, I suggested he just try the conversion on a different program, one that only does conversions, jsut to see if the files were the problem. I've done thousands of conversions on MC and it is the way to go.