I think the short answers to your questions are: no, no, and no (in that order). A little more complicated: iTunes is not lossless. Converting a lossy file (any format) to a different format just gives you the same information in a different format. Once lost, the lost bits stay lost. Of course, it's a whole lot more complicated than that if you dig -- and I understand your confusion -- but that's the big picture.
At the risk of really making things more complicated, think it goes kinda like this. Start with a standard Âredbook CD (no, donÂt know why they call it that). That standard is 16/44  which means that each digital sample slice of music contains 16 bits of information, and there are 44 thousand of these sample slices per second. 16 bits x 44 kHz x2 (because weÂre talking a stereo signal, so two channels) means that the bit rate of standard Redbook CD is roughly 1,408 kbps (thatÂs 1,408,000 bits per second). Now, this is an entirely arbitrary number  but itÂs for whatever reasons what was selected to be the CD standard and therefor what the term Âlossless is usually measured by. A Âlossless format (AIFF, WAV, ALAC, FLAC, etc.) is a lossless format because it can encode a bit-perfect copy of this Redbook standard. From there, easy enough to figure out how big a file would be depending on how long it is: a four-minute track at 1,400 kbps would be 336,000 kb. In a file size youÂre used to, thatÂs roughly 40mb for a four minute track. (8 bits to a byte, a Âmegabyte is a million bytes .).
So, thatÂs pretty big (less so these days, as bandwidth and storage continue to increase, but anyway). As youÂve no doubt noticed, the quest in all things digital is to make stuff smaller  which, not coincidentally, makes stuff much easier to sell, download, stream, etc. over the internet. There are two basic ways to make a 40mb digital file smaller: compress it or get rid of some of it. Compression just takes the same information, runs some math-y algorithms on it and such, and gives you a smaller file size  but with the same bit-perfect information as the original. (Think this is mostly done by encoding the silent spaces, rather than transcribing them bit perfect. If youÂre sampling 44k times per second, a lot of music is actually silences. Rather than encode each slice of silence with 16 bits of information, which is more than you need to describe nothing, the algorithms describe it more succinctly, thus giving you a smaller file size. Or, at any rate, thatÂs how I understand it.) AIFF and WAV are bit-perfect and uncompressed. ALAC and FLAC are bit-perfect and allow for some compression.
The other way to make your 40mb file smaller is to get rid of some of it. This is what a Âlossy format does, and why it does it. ÂHow is more complicated than we need to get into  and is dependent both on the format of the encoder and the settings selected  but perhaps an example. Say you have, as you mentioned, an AAC file at 256 kbps. This tells you a lot of things about it. First, the bit rate about 5.5 times less than Redbook (at 1,408 kbps). Put another way, 82% of the original is gone. Any by "gone," it's really gone -- discarded, never to be recovered, gone. Or, flip side for an AAC 128 kbps track, only 9% of the original data will be left. That's right, nine percent. When we say Âlossy, itÂs no joke. But, because this makes files much smaller (AAC runs both lossy and compressed), it makes it much easier and cheaper for folks like Apple to sell on spots like ITunes. Thus, weÂve got the inherent tension between business models and resolution. But thatÂs very much a different story .
In any event, there you go. ITunes store = lossy. A lossy file is lossy forever, even if you change the format. If you want lossless music, purchasing stuff from ITunes aint the answer.
At the risk of really making things more complicated, think it goes kinda like this. Start with a standard Âredbook CD (no, donÂt know why they call it that). That standard is 16/44  which means that each digital sample slice of music contains 16 bits of information, and there are 44 thousand of these sample slices per second. 16 bits x 44 kHz x2 (because weÂre talking a stereo signal, so two channels) means that the bit rate of standard Redbook CD is roughly 1,408 kbps (thatÂs 1,408,000 bits per second). Now, this is an entirely arbitrary number  but itÂs for whatever reasons what was selected to be the CD standard and therefor what the term Âlossless is usually measured by. A Âlossless format (AIFF, WAV, ALAC, FLAC, etc.) is a lossless format because it can encode a bit-perfect copy of this Redbook standard. From there, easy enough to figure out how big a file would be depending on how long it is: a four-minute track at 1,400 kbps would be 336,000 kb. In a file size youÂre used to, thatÂs roughly 40mb for a four minute track. (8 bits to a byte, a Âmegabyte is a million bytes .).
So, thatÂs pretty big (less so these days, as bandwidth and storage continue to increase, but anyway). As youÂve no doubt noticed, the quest in all things digital is to make stuff smaller  which, not coincidentally, makes stuff much easier to sell, download, stream, etc. over the internet. There are two basic ways to make a 40mb digital file smaller: compress it or get rid of some of it. Compression just takes the same information, runs some math-y algorithms on it and such, and gives you a smaller file size  but with the same bit-perfect information as the original. (Think this is mostly done by encoding the silent spaces, rather than transcribing them bit perfect. If youÂre sampling 44k times per second, a lot of music is actually silences. Rather than encode each slice of silence with 16 bits of information, which is more than you need to describe nothing, the algorithms describe it more succinctly, thus giving you a smaller file size. Or, at any rate, thatÂs how I understand it.) AIFF and WAV are bit-perfect and uncompressed. ALAC and FLAC are bit-perfect and allow for some compression.
The other way to make your 40mb file smaller is to get rid of some of it. This is what a Âlossy format does, and why it does it. ÂHow is more complicated than we need to get into  and is dependent both on the format of the encoder and the settings selected  but perhaps an example. Say you have, as you mentioned, an AAC file at 256 kbps. This tells you a lot of things about it. First, the bit rate about 5.5 times less than Redbook (at 1,408 kbps). Put another way, 82% of the original is gone. Any by "gone," it's really gone -- discarded, never to be recovered, gone. Or, flip side for an AAC 128 kbps track, only 9% of the original data will be left. That's right, nine percent. When we say Âlossy, itÂs no joke. But, because this makes files much smaller (AAC runs both lossy and compressed), it makes it much easier and cheaper for folks like Apple to sell on spots like ITunes. Thus, weÂve got the inherent tension between business models and resolution. But thatÂs very much a different story .
In any event, there you go. ITunes store = lossy. A lossy file is lossy forever, even if you change the format. If you want lossless music, purchasing stuff from ITunes aint the answer.