Lightroom doesn't store a copy of your photo in its catalog. It stores the metadata and previews of your image. Essentially, it grabs the jpeg preview, shooting info etc, and creates its own higher resolution jpeg, but leaves the image file untouched. So, there really is no reason to remove photos from the catalog. What takes up room on the hard drive is the image file itself, which Lightroom does not alter or 'import'.

If you want to reduce the size of your LR catalog, or perhaps store away some older images, the easiest thing to do would be to 'Export to catalog', in which LR puts that image data into a separate catalog, removing the info from the main catalog. So, if you want to move the images to a DVD or to a separate harddrive, you simply move them in LR, then "Export to catalog". You can even move the catalog file onto the separate harddrive, and store it all away for later.

Now, after considering all that, if you truly wish to use LR to create a jpeg file to replace the RAW file to save space, the simplest thing to do is the following:

1. In Lightroom Preferences>General, check the box that says "Treat jpeg files next to raw as separate files'
2. Select all the images you wish to convert.
3. Choose Export. Select Export Location as "Same folder as original photo". Export as jpeg
4. When complete, in the Folders view of Library, right click on the next higher level of the Export location drive. (Example: if you are converting images in your Photos\2009\Jan\ folder, choose \2009). Choose "Synchronize folder". This will import all your new jpeg files into the catalog, in their existing folders.
5. In Library, choose the higher level folder, then filter for raw files only. Delete, removing from catalog, and hard drive. This removes the raw files, leaving only jpeg files.
6. If you no longer wish to have the jpeg in the LR catalog, export jpeg to a catalog, or remove from LR catalog, leaving the files on the harddrive.

Now you have jpeg replacements of the raw files, in the same folders as the raw were originally.