Well, in regards to updates, there is always the risk that it "could" brick the system, although in actuality, it rarely happens. With most Consumer Electronics devices, the updates are tested and checked, so it wont brick.
However, unless the power is shut off during the update, or something catastrophic happens while its updating (like you take a magnet to the hard disk), you should have no problems upgrading the system.
Now, some do not like to upgrade there systems, in hopes of a hack for a lower firmware version, however if you wait, you will not be able to use PSN, or play newer games.
As to formatting the system, its up to you. If he has some game demo's installed, I say keep them. If you want a very fresh system, you can use the option in the PS3 to restore the system, which should return it to its factory condition.