how do i delete all my music I purchased through iTunes. I want to free up space on my computer.

Put iTunes into song view (with nothing typed in the search field), select the first song then shift click on the last song to select them all, hit the delete key. When prompted opt to delete original files.

Yes. If you want to exclude those items you can sort by file type and just select your purchased content. However your CD imports will also be in iTunes Match.

Personally, I'd get an external drive to put the content on, rather than leaving it to iTunes Match.