iTunes: How to convert a song to a different file format - http://support.apple.com/kb/HT1550 - including information about different formats and discussion about compression.
In iTunes11: File > Create New Version
In iTunes 11 "Create..." is in the File menu, not the Advanced menu.
You can't convert while exporting. Exporting doesn't actually do anything with the music file, it only exports a text lising of the tracks.
Of course using the above method will make a bunch of duplicates in your library. If you want to use iTunes with the new version on the external drive you may wish to do it that way so it all remains in the library file which you are also exporting. If you intend to rebuild the library file from what is on the external you may wish to use a third party converter such as Max or XLD.
I strongly advise against using WAV format, particularly if you are rebuilding your library. WAV does not save track information as tags in the file so you will have to relabel all your files. With WAV the only information you get is the filename.
Putting iTunes on a NAS has been problematic for some. I suggest you browse recent posts. If you put iTunes on the NAS I recommend you put the entire library on the NAS, not just media files.
What are the iTunes library files? - http://support.apple.com/kb/HT1660
More on iTunes library files and what they do - http://en.wikipedia.org/wiki/ITunes#Media_management
What are all those iTunes files? - http://www.macworld.com/article/139974/2009/04/itunes_files.html
Where are my iTunes files located? - http://support.apple.com/kb/ht1391
iTunes 9 [and later]: Understanding iTunes Media Organization - http://support.apple.com/kb/ht3847
Image of folder structure and explanation of different iTunes versions (turingtest2 post) - https://discussions.apple.com/thread/2741246?answerId=13025536022#13025536022 and https://discussions.apple.com/thread/3700206?answerId=17457605022#17457605022