Filesizes:
Some cams have options to record at different quality, bitrate or profile of picture (so 4:3 instead of 16:9 widescreen will be a smaller file). My HQR2 recorder will put a gig file for every 20 minutes, or select a lower quality option and I can get about an hour onto a gigabite.
Software:
Windows movie maker is actually pretty good. It doesnt like apple/mov files etc, so yes you would need a convertor. HLab's recommendations are pretty good.
Or you can invest in some dedicated software, often comes with music, allows you to mix audio, create picture in picture, etc. You do have to check that the software accepts the format/cam you wish to use though. Otherwise you'll still be using convertor software.