Depends by what you mean by damage. You will not be able to return to a former good install but you may not need to (if you have backups for instance) The correct way to do this is to turn off system restore in the control panel(I think).
Yes if you turn off system restore, the backups will be deleted (you can turn it back on again immediately if you still want the functionality, but don't need any current restore points).
btw - this is the 2k Pro forum - 2k Pro doesn't have system restore functionality (ME and XP do)!
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