Instead of attempting to publish Remote to Local, close the site on your computer. Then open the site on the server by selecting the File menu and choosing Open Site.. Open web address
http://yourdomain.com.
The site on the server is now the "Local" site. The "Remote" site will be in a new folder in the file system of your computer.
Because the server site is now the Local site, you should be able to right-click files and choose Don't Publish. Unfortunately you can't set whole folders to Don't Publish so you'll have to go into each SMF folder and multi-select the files to set them to Don't Publish..
When you're ready to publish the site down to your computer, select the File menu and choose Publish Site. Publish using the "File System" option and publish to a new, empty folder in the File System of your computer. Answer "Yes" to create a new web site in the folder. You can ignore the cautionary message that forms and other web components will not work while on your computer (we knew that already.)
I believe the .htaccess file issue will take care of itself, but in any case do not delete .htaccess or the FrontPage extensions will stop working.