It's a good idea to wipe & reload sometimes. I do it a lot but that's just because I upgrade all the time.
1. Yes, you have the right idea. The BIOS works even with no drives! Like, you could boot from a USB flash drive and have zero hard drives or optical drives and still have a working computer. The BIOS is on the mobo, so it works fine without drives.
2. For security reasons, wiping is done multiple times with different algorithms. This is usually for security when selling/trashing HDDs, though. Companies and the gov't do this a lot, and power users! You don't need to do many passes if you're just gonna reinstall your OS, though. That would just end up wasting an entire day for you.
3. DBAN! http://www.dban.org/
4. Well, the easiest dumb way to check is to open your case and see how many HDDs are in there! 100% guaranteed! Otherwise you can check device manager or computer management > disk management. If you have two hard drives then you cna disconnect one while you install Windows on the other one. If you have two partitions then you can recreate them at install time. WinXP will do partitioning of the HDD for you.