Jeff, consider a RAM upgrade if you're using Parallels. 4GB RAM means 2GB for Windows and 2GB for Mac. It's not quite that cut and dried, but essentially...... Consider your minimum RAM needs based on splitting the RAM.

I recently installed Microsoft Office 2010 (an upgrade from 2007) on the Windows side of my machine and have had no problems.

No, you do not need to reformat external drives.

Yes, Macs ave a higher up-front cost. But that is normally recouped in terms of low maintenance and longevity. Having the same company control both hardware and software is a mixed blessing, but the last time anyone had to upgrade hardware to run an Apple OS was in March of 2001, with the introduction of OSX 10.0. I have two machines tucked away in the back of closets that predate that. There's nothing wrong with them, except they're OS9 machines. So far as I can recall, neither has ever been to the shop, and both saw extensive use as part of a small business (rental housing) system.