yer method is "lossless" it sounds like...i've never used WinDV so i'm a bit at a loss...certain capturing programs will allow you to capture only the audio as a wav...this eliminates the avi-to-wav step, tho there should be no lossy compression occurring, as i'm assuming its capturing as "raw" .avi
to convert wavs to flac, you can use FLACFrontend
http://flac.sourceforge.net/download.html
for everything else when dealing with lossless files, i'd use Traders Little Helper
http://thor.prohosting.com/roh0205/
as for crowd noise, if its the applause between songs thats too loud, you can manually decrease the levels for those sections...if its during songs, any filters you use will also greatly affect the sound of the music, so i wouldn't really advise it...you can try playing around with some of SF's filters but i doubt you'll be happy with the results.
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