My hard drive is partitioned into two partitions C: (operating system) and E: (all data)
I have regular system image backups where I backup OS and Data together. I need to restore from a system image due to slight problems. My question is:

Will restoring from my saved system image reformat the WHOLE of my hard disk or is there any way I can just restore the OS side of things and leave the data untouched? I do have a backup of all data separately but I really don't want to start restoring all that unless 100% necessary!

Windows 7 ultimate - 32 bit version

What application are you using for this imaging as the restore may well have the options you are looking for.

Just the built in Windows backup system image utility. I can get into my PC but it hangs at start of bootup with black screen and flashing underscore symbol. My image backup is both c: and e: drives so that's why I don't know if restoring it will restore the whole lot. Any more advice?

Typically a restore from an image does not involve a lot of user involvement other than selecting the primary partition (drive letter). I do not believe it would format the entire physical drive, you should check the documentation of the application you are using.

Unless the image backup is self booting you will have to restore the OS, then restore the image.

Many image applications include the OS files as well. That's what we use at work.

By definition an image is a sector based dump of the drive. Its not file based, like some backup utilities.

So, one still needs to run a program to copy that image back onto the hard drive. If the image media is bootable, then it will load the program to restore the image. It may not even boot to Windows, but it will need to be bootable.

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If the image media is bootable, then it will load the program to restore the image.

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Yep, that's what we do.