The interesting thing about audio chains is that they do NOT follow the "as bad as the weakest link" principle. A poor quality MP3 will be much more listenable on an overall crappy setup than on a high-end setup, mostly because the crappy setup will cut out both the lows and highs and leave you with an OK "background music, more or less".

As someone who sometimes listens to music digitized from analog sources, this has been my experience, too. Tape hiss, cracking/pops and distortion are easier to notice on my headphones+DAC than on my (somewhat cheaper) IEMs.

At that point, it doesn't matter whether you have FLAC or MP3.