I downloaded a FLAC album and my Yamaha receiver does not change the display name it still says PCM
should it say FLAC like when DTS or DOLBY DIGITAL tracks play?
DTS and DOLBY DIGITAL output perfect so does flac need another codec or something??
Your receiver most likely cannot decode FLAC itself. What's happening is that XBMC is decoding the FLAC and passing it to the receiver as PCM. The receiver always displays what kind of audio it's receiving. It's not receiving FLAC, as XBMC already decoded it. When XBMC is using audio passthrough, it won't decode the stream and will pass it straight on to the receiver. In this case, the receiver will show the type of audio it's receiving and decoding.
so the flac is playing at the quality it should be ? is that right?
Yes. No receiver natively supports FLAC - it must be decoded to pcm. The quality will be as good as your soundcard can pass for 16bit FLAC.