Could do...but I had a similiar problem with my laptop which runs XP Professional SP2 a few weeks ago. It took about 10 mins to boot and then hung with WMP etc - I tried all the standard stuff which I do in this kind of situation but all to no avail. In the end I reformatted and reinstalled - now it's running pukka
Well reformatting might not be necessary. Have you tried repairing your OS from the recovery console and or/running stuff like Norton WinDoctor?
1: yes unless you back them up.
2: You will need to reinstall all software and hardware drivers etc.
3: Yeah, apart from any device software/driver cds which you might have - for chipset, graphics drivers etc. However you can get these from your hardware manurfacturer's website.