If you have to use Windows Movie Maker, then I recommend you to use the AVI format for minimal quality loss. Bear in mind though that using the AVI format is not the optimal solution, and will result in huge amounts of disk space use, as well as quality loss through the conversion of AVCHD MPEG4 to AVI.
The best way is to find a video editor that supports AVCHD MPEG4 so you can edit from the original video source files direct. That way, you preserve the highest quality (dependent on source), and you save on disk space at the same time.
Depending on your vision for the final video output, several video editing packages will suit your needs. My personal recommendation is to start learning how to use the Sony Vegas suite of video editing software. That way, your learning curve will be transferred in between the various stages (beginner, intermediate, advanced) as you move up the different versions of the Sony Vegas Suite.
For beginner : Movie Studio 9 Platinum Edition
For intermediate : Movie Studio 9 Platinum Pro Pack
For advanced : Vegas Pro
You will be able to learn about the full creative options available to you at a methodical and progressive pace, starting from Movie Studio 9 Platinum, to Movie Studio 9 Platinum Pro Pack, and then finally to the Vegas Pro.
Most important, have fun, don't be afraid to experiment, and study how good videos are done to take you to the best you can be in this fun and rewarding hobby, that can turn out to be your next profession.