1. As Scook said, you will either have to buy the MP3 encoder once for 10 bucks, or use an external converter.
2. You can't edit while recording as far as I'm aware. If that is what you meant. Obviously you can edit whatever you have recorded after the fact.
Not sure what you mean by "record one session at a time", but insofar as I can interpret it any software can do this.
As others said there are more packages out there. Honestly it sounds as if your recording needs are not incredibly complex and as if you won't need a lot of virtual instruments to build an arrangement (since you'll be recording a band). In that case you might opt for a cheaper version of Sonar (even the basic one) or look at a program like Reaper. They're relatively skimpy on included fx and extras but well featured for recording and editing.