itunes downloads = burn to a CD and rip the CD however it is you normally rip CDs
as for converting to video that will work in Vegas:
here is a list of editable codecs the codecs you would want to use in Vegas are either Huffyuv or Lararith, both make huge files, you can however convert your files in Virtualdub Mod and only take the short clips you need (this will require more planning when making your video though)
and if you disable the audio it will also save space... (in virtualdub mod go to streams->streams list-> disable stream) it will also keep vegas from having to "render audio peaks" which gets really annoying after a while