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I had to do a factory reset a couple of days ago as I had serious Wifi issues (now fixed) and yes it wipes all content - including music, books from Amazon, newsfeeds and books from non-Amazon sources.
Once it had reset, I got my collections back. It also installed the user guide, a welcome letter and the 2 dictionaries. But that was all.
Not a big issue to me seeing as I don't keep much on the Kindle these days. I tend to download books from the Archived Items or my Dropbox acc as and when I want to read them.
But for anyone else doing this, I'd recommend plugging in your Kindle to your PC and backing up the Kindle Documents folder first and also the music and audible folders if you have anything in those.
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