As far as I know there is no way not to have a song added to the library. And for automatically remove a song that you've deleted from the hard drive is backwards to how it seems iTunes should be used.
Think of iTunes as more of a manager not just a player (we have quicktime for that). instead of searching, playing (in a sense) and deleting through I'm guessing the finder, try using itunes for those task as well. In preferences there is an automatically manage music folder option. this is for when you delete something in itunes, it will be reflected in the finder.
When you buy from the music store there is a limit because the RIAA said there should. M4p is the format for protected AAC files. and M4a is for AAC files. and M4b is for AAC files with bookmarks like audiobooks.
You can burn them to disc and reimport them to take off the encryption (there are other means too) but it's not 5 times per song it's 7 times per unchanged playlist.
and don't know an answer to your last question.