I Need Suggestions On Capturing, Timeline Settings and Final Rendering

Okay folks, this is me confused!  I've been editing videos for the past two years and that isn't saying much as I've only trained myself through trial and error and reading manuals.  I simply pretend that I know what I am talking about:)  I have purchased the 5D Mark II and have FCP7.  I think I'm doing okay, but I know there must be a better way of doing things and need help in doing so. 
I film 1920x1080 30fps.  I capture my footage with the default settings on the EOS disc that comes with the camera (works great), then I run my footage through MPEG Streamclip and convert them to XDCAM HD 30.  From there I allow FCP to auto set the timeline to match the footage and then I edit away.  So far so good and I'm really not complaining.  However, since I have been making things up as I go along for so long, I have several missing pieces to my understanding of best quality film.  I've been trying to figure out the use of ProRes codecs.  My limited understanding (what I've heard and read) is that ProRes provides some of the highest quality.  So my question is, should I then scratch the XDCAM codec conversion and go straight to ProRes, then edit ProRes and then final render as such?  I'm confused because there are people that have said that you should edit in a lesser format and then render in the higher quality of ProRes since ProRes takes up more space on the hard drive (bigger files), yet, when I read official info on ProRes, the claim is that the files are small.  So there is confusion number one.  Then, confusion two, is if I edit in XDCAM or ProRes, what then?  Meaning, is it best to send to compressor upon rendering or do I send it to QT or QT Conversion and then send that file to Compressor, or do I leave it at that and send to DVDSP?  I know this is elementary, but all the conversations that I have found seem to be based on the understanding that I should already know this.  So, I'm embarrased to say, I don't know, "this". 
I have however, taken an edited a XDCAM timeline and then changed the Render Setting to ProRes and sent it to QT or QT Conversion (I can't remember which one sorry).  The video had some text at the very end, and it looked incredibly jagged (no bueno).  So I know that I was assuming or doing something wrong, and my "trial and error" has run its course as I have nearly run out of time.  Therefore, I call upon the Discussion Board for help. 
To sum up my questions:
1.  Should I convert to ProRes to begin with instead of XDCAM?
2.  Do I edit in ProRes and what should I make the settings for the Sequence (or should I allow FCP to auto select based on video files settings)?
3.  What next?  Do I send that sequence to QT, QT Conversion or to Compressor?  If QT or QT Conversion, should I send it to Compressor after that?
4.  What should I have my settings be over all on my Sequence?
I hope I'm not too annoying with my questions, and any help would be great.
Thanks,
Crayton

1. Yes, absolutely.  By immediately converting to a long gop format you are throwing away TONS of information.
2. Auto-select.  By all means match clip and sequence settings
3. You haven't said what your deliverable is, so can't advise you how to export.
4. See #2.
Pro-rez will be larger files than what you are getting from the camera.   Get used to it, drives are cheap.

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