Conversion to Atelier

If our SVN repository already is storing discrete .cls files, does Atelier do any conversion when we load from SVN into our server instance?

No, except maybe for repository structure. That depends is Atelier + EGit support repository structure you use. For how to use EGit with Atelier check this article.

At what point would I see .udl files? I am thinking I would only see that if SVN was storing .xml and each of those would be converted to .udl.

There are no .udl files. There are just cls/mac/inc etc files in udl format, meaning they are represented on disk as is and not in the xml format. The extension would be .cls and so on. Here's the sample repository created with Atelier.