folders and transfers

I have a free wordpress site set to https://www.meshtime.com. I just setup a worpress account with my domain hoster @ https://www.meshtime.com/wordpress
I think I need to reset my free account
Nameservers: (Last update 7/11/2011)
NS1.WORDPRESS.COM etc ? Yes or No?
If yes how do I do that?

Secondly should I have my hosted site folder be domain.com versus domain.com/wordpress?
If Yes will this change or imapact current posts on my blog?
If NO will a reader be able to see and search for all content?

OR please point me to a comprehenisive post on how to migrate safely from free w.p to self hosted at a third party domain hoster.

cheers
Thanks
Kevin