In Settings -> Privacy -> Factory data reset?

I don't mind giving it away rooted, but if it wipes out the Superuser application (hence allowing any app to enter root mode unchecked) would be very very bad.

If it erases that app while leaving it rooted, can I just re-download the .apk and reinstall it afterwards? Or does that procedure unroot the phone? That would be OK too.

It's a Milestone 1 with Motorola's official 2.2 update. I just rooted it so I could use the ClockSync and Screenshot apps.