Phil, what I do is I have a big external for Apple Lossless (6000+ tunes). Then I put my favorites, stored as AAC songs, in a file on my internal HD (~1600 tunes). Then I put those all indifferent folders. If I am (rarely) in my main library folder and don't want to see the AAC songs, I simply type the word "lossless" and the AAC songs "disappear".
But then I duplicated those AAC songs on my laptop and then deleted them later, but both worked well for me.