Which kind of "restore" are you talking about?
1. Manufacturer Restore - usually a feature in most manufactured comps that allows you to restore your computer to the same state it was when you originally bought it, this includes any pre-installed software (HP and Dell puts lots of stuff on the sys.restore).
2. Windows System Restore - feature in XP that lets you restore your computer back to a specific restore point.
for the 1st one - usually there is a specific partition on your comp that contains all the files needed for system restore. If you delete/format this partition, you will no longer be able to restore.
for the 2nd one - System Restore is a very wasteful operation and doing a reformat and reinstall (provided you have a bootable windows XP install CD) cleans out your system and provides better performance and sometimes a Windows system restore can cause more probs than it creates.