If it's the first option, thats fine. Just remember that when it comes to COMPRESSING your video, you only want to ever do it at the VERY END of the editing process. If you compress any of your source video BEFORE editing, you are losing a lot of quality, and that is a bad thing.
So, if you are using WMM and you need to make clips to edit with, you should use a LOSSLESS compression method, like using the Huffyuv codec or Lagarith codec. Both of these come with AMVapp.
I am glad to hear that you are indeed researching and giving the process serious thought. But as others have said, don't just skim through the guides. Really read through them and FOLLOW ALONG with what its talking about. If you're like me, you learn better from doing instead of just reading. So, the best practice is to do WHILE you read

