Yeah, I would. I didn't state it because it's not necessary, it's just something we recommend. Since you want to wipe your phone go ahead and do so. That's completely fine to do.
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Did that, see above. Your files are in a folder inside the nandroid folder just like any other nandroid backup. No dice.
I just checked and my phone shows firmware version 2.1 I thought I was on 2.0.1... Kernel version is Chevy's2.6.29 Maybe I need to go stock and start from scratch again.
You can check THIS thread for nandroid error codes. I have only seen a status 25 when there is a folder issue. The kernel you run shouldn't make it so a nandroid restore wouldnt work.