You can buy mem cards for extra storage then what the Wii itself has, so you can put pictures and such on it. I think even mp3s.
Because the internal memory isn't very big at all. Although the saved games don't seem to use up much of the memory so it should hold a lot of saved games. Pictures would probably fill it fast though.
yes, when you download a game from Nintendo VIA the Wii, the transaction is saved in your account, so if you re-format your wii and wipe out the internal memory, you can re-download it