If you bought it you can, and should, save it. Even if it is just a downloaded installation .exe file and activation code.
When you reinstall an operating system it overwrites everything on your computer. If you didn’t backup a file, you are going to have a hard time finding it.
More than likely, you will want to keep the new operating system on your new machine. All that you need from your image backup is the data that has luckily been preserved.
Moving Microsoft Office to a new computer is usually an easy process as long as you follow a few steps.
Using an external drive is not going to work like you think in the long run. In the end, a backup image is the most convenient tool to use when reinstalling Windows.
You may want to switch to 64-bit just for the speed that comes from being able to use all of the RAM on your computer. Ultimately, it comes down to what you use your machine for and your own time and resources.
By definition, reformatting a hard drive erases everything. The big question is, why didn’t the technician tell you that?!