Getting rid of the bulk in 3.0

I need to find a better way to edit the AVI files after capturing so as to eliminate the unused/unwanted sections.  I was doing it in the timeline, but that doesn't delete the original AVI files and I'm starting to get low on space while working on videos.  I haven't found any way to edit them and delete the excess. Seems this would be an important step.  I do not want to save the parts I delete.  Do I need to export this early edited version, delete all associated files from my machine, then start a new project with the exported copy?  Will I lose any quality doing that?
Thanks
Tim

Tim,
The addition of more HDD space is great, whether you are just storing your Captured material, or are incorporating it into you editing machine (3 internal HDD's is a good "minimum.")
One caveat, when doing the the rough-edit and Export:
Depending on how much you will want to do further editing of that material, you might not want to edit it too tightly, before you do the Export/Import into a new Project. The reason for this is Handles. These are the extra frames before and after the In & Out Points in your Clip on the Timeline. If you trim your Clips too tightly, and later decide to add, say a Cross-Dissolve Transition, you will not have adequate Handles in your Exported material. I'd also refrain from adding any Transitions to that material, and do that in your new Project. Otherwise, if you change Transitions, you have to cut out the one in the Exported AVI, reset the In & Out Points and leave enough "extra" frames for the Handles.
Explanation of Handles:
Were I using this method, I'd do a very loose edit, leaving several seconds of Video at both the Head and Tail of my Clips. I'd throw in little sections of Black Video (from the New icon in the Project Panel, trimmed to ~ 02 sec. in the Source Monitor) to help me find each Clip easily, when I Imported the Exported (remember, it will now be one complete Video and not discrete Clips any more) AVI into my new Project.
Just something to think about, prior to doing the Export/Import thing. Do not short-change yourself, or you'll be tightening shots up much more than you might want to.
Good luck,
Hunt
PS now, if you KNOW that you have your initial edit finalized, except for maybe some Soundtrack work, then you can Export/Import with no worries.

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