You're most welcome, Hikertrash.
Virtual Dub was originally created to edit ASFs and AVIs.
The main reason why AVIs are smaller than the original Movie clips without degrading the pictures too much were in the way those Clips were compressed. A good exlplanation you can find here: Key frame - Wikipedia, the free encyclopedia
The Problem you'll see if you cut besides key frames is a completely distorted picture for several seconds (because vital picture information is missing and will be substituted by garbage) until the player reaches the next key frame (thus getting a stable picture again)
As for your Audio problem..that's a little more work-intensive: You'd have to
#1) Export the complete audio of said clip (nr.3, was it?)
#2) Edit the Audio track by either mute the duration of the copyrighted song or exchange it for something other
#3) Re-import the new audio stream to overwrite the original one.
* If the software can identify the song why can't they just mute that part?
Because frankly they don't give a *** They just mute the whole clip and are safe from retributions from the copyright holders....Go the way of the least resistance seems to be the policy here
If you need more help with the audio part, let me know