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Formatting internal memory will delete all of the prior owner's data -- it will be just like the device was purchased new. Doing so should also remove any tie to prior owner's Sony reader online account.
I checked my PRS-T1 to identify the steps to reformat the device. To factory reset the PRS-T1:
* On home screen, press arrow (lower right) once to go to page 2
* On page 2, see Settings (at bottom of page)
* Press Settings
* On Settings page, press Initialization
* On Initialization page, press Format Memory
* On Format Memory page, press Internal Memory
* On Format Internal Memory page, press YES
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