You don't have to remove all data, however, if you have sensitive data, like tax returns, banking etc., you may want to consider moving it to an encypted password protected disk image.
Choose Sparse Bundle, which will only use space for the amount of data you move to it. Although you should create a disk image large enough for your eventual needs.
Either that, or zero the drive in Disk Utility. But restoring from TM may be a bit of a pain, so probably better to just move your sensitive stuff to an encrypted disk image. Be sure you don't check to allow the password to be stored in Keychain. Don't lose the password. The data will be unrecoverable if you do.
I'm having problems with my CD/DVD drive too--27" Intel iMac. I've had it since June and it's always been noisy but last night, I tried to watch a sparkling new DVD and it made these horrible clunking sounds every time it moved from one "scene" to another. At one point it hung, progressed then hung again and when I ejected the DVD, I noticed it was horribly damaged--just scratched like a cat had gotten to it. I tried again and it was just worse. I tried to polish off the DVD and run it in my laptop and it ran just fine so it's not the DVD.
I verified the hard drive--no problems there.
Any thoughts? It's New Year's day (Happy New Year everyone!) so there's no phone or online support going on. I thought I'd post here and see if anyone has any suggestions. Something I can do or check before lugging this wonderfully huge thing into the service center.