I'm sure this is covered somewhere in the forum.
First off yes, that transfer thing would probably work, provided you can store the back-up on a CD or something. You'd also have to back up all your data (documents, pictures, etc) seperately. I've never used it so I don't know really. You can find programs like My Drivers to back-up drivers (but you have to pay for the full, non-trial version of that one... don't know any others).
When I reformat and partition I use a start-up floppy disk with FDISK (google for it, you can find sites that offer little programs that make them for you...), as FDISK is what I use to create partitions. There's probably some better way to do it, but that's what I do (works for me *shrug*). I'm not sure about reformatting partitions but it should be possible.... I'm probably not the person to ask on that stuff...
Anyway simply put find a site that lets you make boot floppies (win98 boot floppy should work fine). FIND ONE WITH CD-ROM DRIVERS, IT HELPS A LOT!! Make sure you know some basic DOS commands. Have the floppy IN the drive when you boot up, type FORMAT C: to format the C: drive (assuming this is your hard drive's letter) and afterwards, you can use FDISK to create partitions.
Meh, you can probably find all this in much more detail with a quick search on Google. Just search 'reformat hard drive' or 'how to partition hard drive' or something.
OS: WinXP Pro
Mobo: Gigabyte 8VM533M-RZ
CPU: 2.2GHz Intel Celeron
Vid: Gigabyte NVidia MX 4000 (128 MB DDR, TV out)
RAM: 512MB DDR
HD: 40GB (1:3 partitioned), 34GB
Drives: DVD R/RW and 16x DVD-ROM
ISP: AT&T/SBC Yahoo! DSL