This is how I would solve this...
1. Create a new library (hold down ALT while starting iTunes) on your laptop's HD.
2. In your new, empty library, go to Preferences -> Advanced
3. On the "General" page, make sure that "Keep iTunes folder organized" is
checked and "Copy files to iTunes Music folder..." is
unchecked.
4. On the "Importing" page, choose the codec you want to use for your converted files - in your case, AAC.
5. Close the Preferences window, go to your external HD and drag the folder of your current Lossless library into iTunes.
6. Once iTunes finished "importing" all the tracks (well, the links to them, rather than the actual files themselves), select the complete library, right-click on a song and select "Convert to AAC".
iTunes will create AAC copies of every song in the library, but rather than saving them on the external HD where they come from, iTunes will store them in your new library's folder on your internal HD. Once the whole converting process is done, just delete the entries for the original files. They should all still be highlighted - if not, open the "Last added" folder, sort by date and set all original files to the same artist or album name, e.g. "DELETE ME" and then select that artist in the standard library view and delete all its entries. Alternatively, there are
scripts on Doug's Apple Script page that will automatically delete "dead" entries from your current library - just unplug the external HD first.
You might want to test the correct settings with a small number of folder first rather than all 10,000 files.