Need to give away Milestone that's rooted, what happens if I do Factory Data Reset?
Depending on the device (and root method), the su binary (which gives your device root) is usually located in /system/xbin/ or /system/bin/ directory, while the Superuser.apk (which acts as a gate keeper, presenting you with a dialog when apps request root permissions) is always in /system/app/.  The /system partition does not get cleared by the Factory Reset process, so it's safe to perform while still retaining root.