Royce,
I can concur with your observation about it not making sense that Apple wiped your hard drive as part of a non-related hardware failure.

But -- Here's my .02 on "Boot camp" and "parallels".
(disclaimer -- I run PC's and Macs separately. I have no direct expereince with BC/Parallels, however I do run "virtual PC" on G4/G5 and other "virtual environments" for application development, etc. So, I'll draw some "parallels" (pardon the pun) between my direct experiences and my interpretation on how BC/Parallels works .. and if it helps, I once stayed at a Holiday Inn ..)
As you have experienced, BC on the Intel Mac is like a Jeckyll and Hyde expereince -- you boot into one environment or another and the Mac becomes that personality. Other than (maybe) being able to cross mount the separate partitions for "Windos" or "Mac", there is no other awareness or data sharing or interaction between the two environments. The benefit is that you CAN do this and choose the right environment when you need to and have some confidence that there isnt some pollution between the environments, memory management is a little cleaner because your'e not running one OS within a virtual environment of the other, and you are pretty much getting as much "raw performance" as that unique environment will allow. It's Windows OR Mac at boot time.. not Windows AND Mac. One "bad" thing is that yes, these environments are separate and you have to have at least 2 physical partitions on your hard drive (among any other "unix-y" partitions / slices to support the Mac OS X -- like a SWAP partition). Sometimes you may need to manage these at a very low (and messy) level.
To your earlier point, you need to have a valid windows liscence and install disc to get it bootstrapped past the "BIOS PC" level.
And .. oh BTW .. "Boot Camp" is a non-supported gift from Apple. They may or may not continue with this method in the next OS.
Parallels, on the other hand, will allow a separate environment to be RUN WITHIN the context of the same session. So, you'd have a base "OS" start of the Mac OS X, and you would load a VM engine that would allow for Windows to be loaded within the same partition of your hard drive. Data MAY be shared between the VM environment and the MAC OS X environment. (BTW -- If you really wanted to , you could load UBUNTU, SUSE, or Red Hat Linux in that "other VM partition" and run them .. it's not limited to "windows" (from what I gather)). The good is that you (probably) can manage the VM environment that Windows runs within from a Mac Perspective (much less messier than BC). One bad thing is that you have to have enough RAM for both environments to run correctly -- even if you are going to load Windows for playing SOLITAIRE or MINE SWEEPER -- it still really needs about 512Mb physical RAM to get XP running well. So to get Parallels running well, I'd say that you'd need 512M (+) for Mac OS, and an additional 512M (+) for the VM environment (specifically windows) to run worth a hoot .. then there's the MORE memory that you'd need to allocate for application running. So having 1.5-2G of RAM is probably the target environment on your MacBook Pro to run Parallels (and apps) well. If you stuck with BC and only had 512M ram loaded, you'd probably do just fine.
Now -- Onto Windows Licences. This is one area where I HATE to deal with in PC's (and it's going to get exponetially worse with Vista). The good news is that you (should) have a "blue" XP folder with the Holographed CD and the sticker on the back. Once you get either environment set up (BC or Parallels) you will need to reinstall XP. If for some reason during the install process, some flags go off in the "authentication and registration" process of XP, you may have the priveledge of talking to some of India's finest tech support and telling them that "you replaced your hard drive due to a failure" and that you are having problems reinstalling XP. It has been my expereince that I can reinstall XP on the same hardware about 3x before bells and alarms go off and I have to weave a creative story to the Indian XP license police.
(Hint: DO NOT tell these folks that you are installing XP on a Mac. Doing so will confuse the process and may make their heads explode and then you'll have to start all over again with another CSR. )
Anyway -- hope this helps .. so in Summary --
1) you'll probably have to restart the install process one way or another (Definately with BC, maybe not with Parallels)
2) you'll definately have to reinstall XP -- but unless you've used up all your lucky charms, you should be OK
3) you will spend more time on this than you really wanted to .. ;-)
Mike