Oh, is that what the earlier post was about and your PM.
Yes, the device boots from the recovery partition when you select to do a factory reset either using the buttons or the menu. It formats the main partition and the user partition, then puts the boot images in place and unpacks the firmware to the main partition. The firmware it uses for this is on the recovery partition.
The pinhole just does a soft reset of the device. It just causes a restart without saving anything.
The two times I have managed to stuff-up enough to need to use an image, I eventually did a factory reset. It started OK, but, had a few strange problems. The factory reset sorted that out.
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