The legality of Downloading musics is entirely dependent on what you are downloading (and not where you got it from).
AFAIK most if not all on Jamendo ARE %100 free and legal to use, whereas something like Evanescence is not free and is illegal.
Note there are distinctions between FREE and Legal.
I would say that TH does support legal music downloading (think open maps) but not the illegal sort (which is related to the copy protection and illegal map opening sort of thing.)
I'm not sure I understood you completely (your post wasn't very clear), however, did you try right clicking on a song and choosing the option "Convert Selection to MP3"? I never used it, but my guess is that it will do what you need.
Please, do try to create a new thread if you want to keep talking about iTunes, so far, this thread has nothing to do with World Editor.
Ghan has said he has fixed this. Monovertex please confirm this fix. This was only a problem with people that had signatures in the upper levels like not the special members but the respected members.