Use Clonezilla... it's excellent. I don't know if it uses iso images, but it's not too tricky. Do you have any Linux experience? You basically boot into the clonezilla cd, pick a few options on how you want to clone and you've got your disc image.

To reformat, I would use the windows utilities. Control panel > Administrative tools > computer management > disk management.

To restore, you use clonezilla too. Point to the image and whichever HDD you want to restore onto. I haven't done that part in a while, so I'm fuzzy on the details, but there should be good documentation.