The Wiki has all your answers, but I guess I'll simplify them here:
Firstly, I suggest you should read the
Upgrade FAQ. This should help you glean the following plan of attack:
Upgrade the
HBC first.
If you are only upgrading because you want access to the Wii Shop, then you can do that
here.
If you still want to do a full upgrade (I believe the only thing this gets you is a few fixes for online play in The Conduit) and avoid the risk of Nintendo bricking your Wii, then you can use the
safe update method.
All of this help comes courtesy of:

Read the rest of my post (in response to the other question). It splits games across multiple files, each less than 2GB.
The loader does have the ability to format over the partition, but that functionality can be removed via config.txt. There is a slight chance it could corrupt the drive, but that chance is about the same as your PC corrupting it, I'd say. If you are still worried, you could always just partition your drive into two FAT partitions and just use the one with the Wii games on it for less important files.