The songs from the iTunes Music Store are in protected AAC format (.m4p) at 128kbps (this is generally considered equivalent to 192kbps MP3, with better highs). If you rip a CD using iTunes, you get regular AAC format (.m4a).
Only iTunes and the iPod can play .m4p files; however, as said before, you can burn to CD and re-rip to anything from there; there will be a slight loss of quality.
No one has ever reported spyware/searching capability in iTunes, and I would be very surprised it if were in there.
You can always send the codes to me it you don't trust Apple....
