For the kind of fidelity you need, your best bet is to use MP3 compression which can reduce a WAV or AIFF soundfile down to a quarter or even a tenth of its original size with so little loss of quality as to not be especially noticeable.

You can by USB mics. There is also a USB device called an iMic which takes standard mic jacks and hooks into a USB port, which can be had for relatively little and is quite convenient.

If the software you are using allows you to save directly to MP3s, that would be the best way IMO.

Otherwise the source file (WAV or AIFF) has to be converted. iTunes will do this.

A