So what you are saying is that the standard is MP3 (which my ipod supports)and as such I might as well import all of my WMA files into MP3 files (as the AAC's take up a lot of space?)
At the same bit rate, an AAC file will be almost exactly the same size as an MP3 file. MP3 is supported on more players, so it's often chosen by people who have multiple different player that they want to use their tracks on. If you're only using iTunes and an iPod, AAC generally will give you higher quality audio at a given bit rate, though you can get quite good quality in MP3, particularly if you use the
LAME encoder (or a utility based on LAME) which many people feel does a better job than the iTunes MP3 encoder.
Am I right in thinking the import settings are under 'preferences'?
Yes, iTunes Preferences. In iTunes 8 -> General -> Import Settings button.
Also I assume the newly imported files will then appear in my libray
If you use iTunes to import/convert them, yes. If you use some other, third-party, converter, you'll have to add the tracks to iTunes yourself.