Based on how FairPlay works, and how quickly the conversion happens, I think itunes probably just gets permission from Apple's servers to permanently decrypt the files: http://en.wikipedia.org/wiki/FairPlay#How_it_works
But aren't they also improving the sound quality to 256 whatchamacallits? I thought that was another aspect of iTunes plus.
Go to the music store. There is an iTunes Plus link under quick links.
Thanks. I just did this too - goodbye DRM! 57 songs upgraded for $15.40, not too shabby.