My Windows Vista Home Premium system is corrupt and won't install Service Pack 2. I have followed all the advice from Microsoft and still no luck.

I would like to perform a clean install of Vista, then SP1, and then SP2. My concern is the effect of the clean install on the registry, my apps and all my data.

My plan:
1. Download Vista Service Pack 1 (SP1) ISO and write to DVD.
2. Download Vista Service Pack 2 (SP2) ISO and write to DVD.
3. Backup all data, applications and registry to external hard drive (file copy not disk image)
4. ?? Format hard drive?? (is this necessary?)
5. Install Vista from DVDs / CDs.
6. Install SP1 from DVD
7. Install SP2 from DVD
8. Restore registry, applications and data from external hard drive.

My questions:
1. Is formatting the hard drive a necessary step?
2. Will restoring the registry from the backup corrupt the system?
3. Should I use Windows Backup or ZIP/RAR?
4. Any gotcha's that I should look out for?

Background:
I am using Windows Vista Home Premium with SP1. The sfc program does not finish due to a resources problem (even when run as administrator). I have 5 users on it. After a while, the screen goes black and shows an error message window about an error with login.scr. Standard accounts display a black screen and can't run any applications. Administrative accounts have no problems (even standard accounts when converted to Administrative have no problem). The CBS log contains a lot of 0x8000ffff and E_UNEXPECTED errors (which Microsoft defines as catastrophic failure). This is the reasoning behind performing a clean install up to service pack 2.