yes iPhoto can edit RAW files, and you don't even have to convert them. The second you are done making your adjustments it saves a new version from the master file as a jpeg, leaving the original RAW file intact to be recovered later if needed. It is a bit confusing because it'll still labeled as .PEF or .DNG or whatever RAW file your camera creates (mind does both) but when you look at the file size it's significantly smaller. The help section outlines working with RAW files as well.
Your tools are relatively limited with iPhoto, I just got adobe Photoshop lightroom in a press review kit, I think it costs $300 retail. This program is awesome, it works just like iPhoto or aperture in that it leaves a copy of your master file intact so that if you screw it up you can revert to the original. It also has a much greater control over editing and gives far superior results. Don't buy it if you like to do major editing, it's designed for professional photographers who just need to adjust color cast, minor lighting problems, clone out some dust spots, maybe convert to grayscale but that's it. You can't use layers and you can't cut things from one picture and integrate them into another.
SLC
), A raw file is a pure unadulterated (read unedited) file which contains everything your cameras sensor recorded and nothing it didn't. It's that last part that makes it necessary to do at least some editing to even the very best of exposures. 
