1. format and clean install its allways the best choice , becouse you will have a CLEAN install, if you upgrade you will have the same temp files and junk in your hard disk
2. i dont think that will work, norton ghost was made for full hardisc backup
3. you can make a bootable cd or dvd with norton ghost , when you need to restore just restart the pc with the cd/dvd on the bootable drive , then you will have several options (format and install with norton ghost cd , or just restore damage files in c: drive with norton ghost cd)
if you use the same drivers and programs vsts etc i recomend you do make a clean format and install of windows and all apps
then you make a bootable cd/dvd backup of the c: drive with norton ghost
everitime you need to format just use the ghost cd like you use xp cd... but the diference is it restore and format the drive in a few minutes with all apps drivers you need ;)
ps: this is the process they use to install the software in laptops with the same specs like asus/acer/toshiba etc its faster and ease to format and install