Hey, Bill. I'm busy writing some bass parts but didn't want to leave you hanging (the MC subforum can be a looonely place, lol).
And no worries. I totes have a sense of humor (don't get the chef boyardee ref though... lol).
I think at this point you really should start a thread about proper file and system backup methods...
http://forum.cakewalk.com/Computers-f84.aspx It's not that I can't or won't continue to help you but thruthfully I am NOT the best guy to ask about real techie stuff. I only really started getting in to computers about a decade ago (they were essentially not at the point where I found them useful/cost effective for my life until then). Even still, despite pretty much being in front of computers constantly now I pretty much only learn what I NEED to know to further my other interests (mainly music).
In the Computers forum though are some SERIOUS computer doods/dudettes who of course have particular knowledge about the digital audio realm. There are even pro DAW builders lurking/posting in there.
So definitely ask them about the best ways to back things up and any other computer related questions you may have.
Make sure you link to THIS thread so they have an idea of what has already been discussed so far (but you may not be able to post a link to it yet but if that's the case and I see the thread I'll post the link myself).
As for your questions...
Yes, that dated "setup" file is likely your System Image. That's what mine look like. I haven't loaded many images though (touch wood) so my knowledge of how to do that is sketchy (but it's easily researchable).
As for your E drive... to include your E drive in "system images" along with your C drive you have to set it up in the Windows image creating thingie (see how technical I am? lol... "thingie"). Same goes for backup programs like Acronys (seriously you should look into that... their free version actually creates images AFAIK, the last version I used did).
And regarding the "Copied" backups and opening them to see if they are okay from a different location... well that is tricky to explain and I'm not sure how MC does it.
BUT in Sonar if you want to save a project somewhere else with EVERYTHING then you would do a "Save As" to the new location and set a bunch of options up for various results. Like there are the old school compressed "Bundle" files (CWB) that takes the entire project, including referenced audio from either the Global Folder or the Project Folder (Global Audio Folder and Per Project Audio Folders are things to understand about default file paths in Sonar and likely in MC as well).
If done correctly and all the paths/options are set correctly it will be an EXACT replica of the original project and open directly from the new location (like your backup drive). Of course if any plugins are missing on your C drive (or wherever you have Sonar and your plugs, etc installed) then those won't load and you'll get a message (but you can still work on the project without the plugs).
So let's say you make this copy, wipe your drive or buy a new computer or whatever. You would then open the file from the external drive in MC or Sonar or whatever then do ANOTHER "Save As" to get it back on your system in a new folder. The program will now reference the new NEW location.
Okay... so you see I'm probably not explaining this well and I'm sure there are better and smarter ways to backup your audio projects properly. Hopefully you kind of see some of what I'm talking about though and can explore yourself and/or make a post in the Computers forum for backup tips, etc.
The Computers forum is still a little slow moving but it's much more populated than this, the Music Creator, sub forum.
Cheers and good luck.