Very simple to create two libraries - if you are using a Mac, hold down the Option (or alt) key as you open iTunes and you'll get a prompt to create a new Library or choose one of the existing ones you have already created.
If you're using a PC, hold down the Shift key when opening iTunes for the same prompt.
Unfortunately, you have a library of compressed music - there's no way of creating another library from this to make an uncompressed library. The only thing you can do is create a new one using the method above and reimport all your CDs using one of the lossless formats.
If on the other hand your library was uncompressed, you could then create a compressed version of all the songs in that library, export these from this library, create a new library using the method above, import the compressed versions of the songs into this library and finally delete the compressed versions from your original library. Sounds more complicated, but is actually a hell of lot easier than reimporting everything!