CD's are written in 16bit 44Khz PCM (Pulse Code Modulated) Stereo. The wave file format is capable of this resolution and ... well basically any resolution, the format does not limit that. ALE almost certainly does not.. but I expect that when it is decoded it *also* decodes to a PCM stereo data stream of the same width and depth. So I'd say it's unlikely that it would be needed to convert the whole file to wave before ripping to CD as it could be done 'on the fly'.
I don't personally have a lot of confidence in the software apple writes though, so I wouldn't be suprised if they do convert the files to wave and leave them wasting space in a temporary directory on your computer.
After having bought a sony MP3 player I will never, ever, EVER buy a portable music device that requires me to install 'conversion software version 7.0' for me to put music on to it. My Iriver is plug, cut, paste and play. No software, no converting files, no nothing. I always found these programs, including iTunes, to be insideously slow and really, far far to difficult to use given the simplicity of the operation I am performing. Tis a shame, that sony NWA-1000 of mine had really good sound.
Oh yeah, and don't get me started on ID3 tags being the only way to organise your mp3 files on these players. I have the ability to create directories with the name of the band/album I choose for a reason. Why can't a portable player handle this? It's one of the basic freedoms of sensible file systems! one of the freedoms in life that the government is yet to take away :O