If you made a set of Product Recovery Discs, then yes they will restore your hard drive back to how it came from the factory.
Installing Rescue and Recovery will not create a service partition. Only the Product Recovery Discs can do that. However installing Rescue and Recovery will change the Rescue and Recovery program in the service partition. If you have Vista in the service partition, then install the XP version of Rescue and Recovery, I am not sure what the outcome will be.
You can delete the service partition and just have your C:\ Windows partition and still install Rescue and Recovery. Rescue and Recovery will install to the C:\ partition. You will be able to use Rescue and Recovery from Windows to do backups and restore files, but you will not be able to boot up into Rescue and Recovery from your hard drive. If you needed to do a complete restore, I believe you will need to boot up a Rescue Media CD, and once in Rescue and Recovery tell it to restore the backup.
If all you are using Rescue and Recovery for is backups, I would consider purchasing different backup software that is more flexible. I use StompSoft Backup MyPC myself. This software was acquired by Migo. See following link.
http://store.migosoftware.com/pc-backup ... eID=PCBUHM
There is also alot to be said for cloning as well. You have to purchase an extra hard drive and a hard drive adapter, such as the Ultrabay 2nd hard drive adapter, or an external USB enclosure. Many prefer regular cloning as opposed to using backup software.