I'm doing exactly this with my DirecTiVo (+ laptop + Onkyo USB external audio card), so I can capture "live" music performances to put into my empeg. It's all pretty straightforward. The Onkyo gizmo comes with software that has a record button, then lets you set up "mark" points to separate what you recorded into tracks. Each track gets written to a separate WAV file, quite suitable for running Lame (or whatever you prefer).

I've never had skipping issues, although the original signal, in one song, had a 30ms blank spot, probably a result of noise in the satellite reception.

Also, for what it's worth, the Onkyo box's documentation claims that you can't just run a CD player's output through it. This sort of copy protection may or may not occur with other S/PDIF boxes. All I know is that everything works perfectly from my DirecTiVo.