I was overwriting a song file after an edit. Then I received a notice ... file may be damaged of incompatible with this version of Sonar ... I tried the shift/safe mode option ... and option 2 ... tried to open file in previous X3 version ... still the same notice. I spent time transferring the audio tracks to a new project to start again but it seems like a major thing to start remixing as the tracks are all over the place ... would be easier to start all over again from scratch but so time consuming.  If I did a system restore to yesterday on my computer, would that make any difference? Frustrated ...

Unfortunately, a system restore (using the Start | run, "%systemroot%\system32\rstrui.exe" command) would only restore your system settings , not any working data itself like your project files.  The corrupted file will not revert to the state it was yesterday.

The only real way to help combat this issue is to have and maintain daily backups of your work.  I, myself, have needed to revert to an earlier version of a project on some occasions and have found a daily backup to be indispensable. What I do is backup to an external USB drive and also upload my current project to a remote FTP server.

Having said that, it's not really normal for a file to suddenly become corrupt.  You might want to check your System Event Viewer for any disk errors that might be cropping up now and then - especially bad blocks.

You're not using bundle files, are you?
These corruption problems usually hit them, not so much cwp-files.

Thanks for the input. I am using cwp-files. Good advice to back up projects outside of main computer. Will be doing that from this point on.

The back ups don't need to be outside the DAW. Just a second or 3rd Data drive.
I use this and after any involved editing or important changes I do the "SAVE AS" and point to the back up data drive.
Just remember that the next "SAVE" will also go to that version so you need to do the "save as" again and point back to your main storage drive.
 
I then when in the mood back up my entire Sonar main folder to an external drive.
As I mostly work on albums, it's a simple matter of just backing up that album folder. Old albums are all safe and sound on site and off site. I have around 10 copies of each to go back to all dated. 
My Backing track folder is getting larger in size as it started life as mostly midi files which are small. Adding audio is what takes up the bytes.
So I think I'll break it up somehow into smaller chunks which makes backup faster.

same thing happened to me on 09 2nd update. project files trashed, assets file intact. any way to remake the cwp from the assets file? all the clips are in the project folder.

I just searched and cannot find any info on "Opening an Asset file". Not at my DAW, but I would see if you can open one straight from Windows or from the File menu.
It must be simple otherwise what's the point of auto back up.