I'll add to it that IIRC altitude separation is based on pressure altitude, not GPS altitude. But this is all academic discussion. Those who experienced flying with Flarm near other pilots can attest to its accuracy. Not once I got close enough to a collision course with another flarm equipped glider without Flarm alerting me.
Ramy

Your memory is correct - from the PF 3.4 manual, page 5:
"If available, PowerFLARM uses the barometric altitude from a Mode S transponder installed on the same aircraft. If not, PowerFLARM uses barometric altitude derived from the built-in pressure sensor. Barometric altitude is used for determining the relative altitude to PCAS targets."
My experience is the same as yours - never had a failure to warn on a flarm-equipped glider. I get about 4.5 km average range. I check my installation occasionally using the range analysis tool.

While I'm not in the market for a new glider, I would not buy one without there being provision for a flarm antenna in the tail with an all-around look, and low-loss coax going to the front; with installations being critical, having to shoe-horn them in (I've installed in an SZD-55 (easy), ASW24 (tight for the antennae), ASW20 (same), and Puchacz (still looking for the right space)) shouldn't be necessary.