oher than making sure you have your input volume levels where they should be to avoid too low or too high volume (resulting in clipping, that sort of thing), the only thing in that set up that would be making a noticeable loss in sound quality would be if you are using itunes to convert the music to a compressed format. check your itunes import settings, if it's set to mp3 or AAC then every file you drag in or import is being compressed and losing sound quality for the sake of saving space. i'm assuming this is the case and you're aware of the compression otherwise there would be no reason to keep a copy of the original file elsewhere on the computer, right? so to answer your question, how is itunes supposed to know you have a folder with the uncompressed music elsewhere on your computer? when you burn a cd from itunes it's using the files that are stored in the itunes music folder which unless you've changed the settings will be compressed files (mp3, AAC). i'll assume that you want to keep a compressed copy of the music in itunes for use on an ipod or something and that you don't want to keep the copy of full quality music in the itunes library for one reason or another. in that case you can either A) import the files again in itunes with the import settings changed to AIFF or Apple Lossless (good alternative to keeping full size files as backup), burn the cd and then delete the the newly imported full quality files out of itunes once you're done, or B) use the finder or Roxio Toast to burn a cd using the folder of full quality music you're keeping elsewhere on the drive.

i backed up a lot of my LP's several years ago using just the audio-in on my g4 tower and the free program Audacity. i then imported that music into itunes in Apple Lossless to be burned onto dvd for backup, and then converted those files to AAC and deleted the Lossless files off the computer to save space. sound quality is fine to my ears, but a little later in life i'll probably go through and re-do it all in super high quality once i get the right equipment, for the sake of preservation.