I don't know what you mean by clone your setup. Exactly what the whole OS? on an external drive. I do have an external drive but don't know how to back up the whole OS.
You use a separate partition (much preferably on a different physical drive) to make an exact copy of your current startup drive. At any time, you can choose to boot to it. Time Machine is a nice idea in that it automatically keeps various iterations of your data for you so you can go back to older versions of a document and such, but is (in my personal opinion) the clumsiest way possible to restore a hard drive.
You can create a clone with Disk Utility, SuperDuper!, or Carbon Copy Cloner. The last two are third party apps which can perform extra abilities to make clone backups easier. I use the registered version of SuperDuper! myself, but CCC works just as well.
Once you make a clone of your startup drive, it is just what it implies. You have an exact copy of whatever drive you clone to another drive/partition. So instead of going through the very roundabout way of restoring a drive by reinstalling the OS and attaching a Time Machine backup to the reinstall on the fly, you simply boot to your clone and copy it back. Done. Takes way, WAY less time to get back up and running.
But if I do a re-install from that it'll bring back my lost stuff but will also bring back the old crap again. So what good would it do.
Yes, that could be an issue, but at least you'd be back to your last Time Machine backup state.
Plus No! I searched the App store and OS X Mountain Lion woulnd't even come up.
Open the App Store app and click on Store > View My Account. Click on the Manage link to unhide redownloadable purchases. Unhide Mountain Lion so it appears under the Purchases tab again.
Where did you read that Apple fixed this 10.8.5 Kernal problem?
A few users noted it on these forums about a week after the bug was noticed. They said the 10.8.5 update and full download of ML were fixed. I haven't checked it myself. It's very easy to properly hide the mach_kernel file if necessary.
Enter this in Terminal, or copy/paste the line below into Terminal:
sudo chflags hidden /mach_kernel
It will then ask for your admin password to complete the command. After that, the kernel should be hidden.
Well it wouldn't do me any good if I brought it back from Time Machine because the error is in the back up.
Yes, that is what would happen. I don't think you have any control over an OS/Time Machine reinstall. You will always be put back at your last backup state.
Furthemore if it's in your past purchases (You should't have to pay for it)! Why would I pay for it when it's in my past purchases with a download button?
You absolutely should not have to. Once purchased, it's yours. I've got Lion and Mountain Lion on bootable USB drives I made from the downloads. I can boot my Mac to those at any time and reinstall the OS. I'm going to do the same thing with Mavericks, just haven't done it yet.