I've recently researched all this for my boat. Its a mine field and gets quite complicated.
I dont think theres any need to compress. Burn you cd's onto a NAS drive in FLAC format. You can then convert these to mp3 if you use an ipod. The point is that with FLAC you have a direct copy of the cd with the quality of the cd as well.
I used MAX (on a MAC, theres more choice of burning software with Windows) and burnt all my cd's onto a QNAP NAS drive. I used FLAC format. I back all this up on another external hard drive. Eventualy I'll have one NAS for the boat and one for home.
The poster that says devices aren't available that read FLAC files must be thinking about something else. Sonos, Revo, Roberts, Squeezebox, Naim, Linn to name but a few, there are countless others, they all support FLAC.
In order to play your cd's from NAS to a streaming device you'll need a media server which sits on the NAS. I use Twonky. This came pre-installed on my NAS
When burning the cd's you need to have thought about a tagging strategy. This is very important when it comes to accessing your Cd collection, getting artwork to be presented etc. Particularly so if like me you like classical music. I need to re-do a lot of this as I got it wrong first time. This is where it gets complex and I'm not really experience enough to comment further. Your probably better of researching one of the audio forums for more info.
Having your CD/DVD collection on a NAS drive seems to me the ideal solution for a boat, it takes up so little space. You can also stream music to all parts. I have a device in the boatmans plus one in the saloon.
I'm waffling so I'll stop there, just hope you've realised that all this requires a little thought and planning up front. I also wanted to put right the fact that there are plenty of FLAC devices available.
Malcolm