Reformating imac

Over the last few weeks my imac, which I never had any problems before has started to play up by hanging up on most things I do. The spinning wheel syndrome.
I have Windows 7 also installed with Parallels.
Sorry to ask a dumb question, I need to restore back to factory settings. Will this process also remove the second partition too?

You haven't said anything about what you've done maintenance-wise, but at a guess I'd say the hard drive is starting to fail (or fill up), so reformatting and putting everything back on will likely not fix anything.