But when the three WAV files have been created, would it automatically know the 'in' and 'out' of my video clip so the corrosponding audio would link up?

If not then the way Im thinking of doing it is to keep the one AC3 file and drag and drop it over along with the video. Link the two items and then edit from the timeline (as opposed to the bit before), then once the edit has been done visually, get to work on the soundtrack using the method you decribe.

Really appreciate the reply and may have your opinion on this? Would it be better to do the audio edits after I'v locked in the edit visually? Means I only have 1 audio file to play with then as opposed to 6...but when it's locked in visually then i can get to work on extracting the wavs.

How do I extract the AC3 file into 6 wavs using Premier?