iTunes Rating System

Your song ratings - and other information like playlists, etc. - are all stored in your iTunes database file(s): namely "iTunes Library" and "iTunes Music Library.xml".
Back these files up and then re-store / transfer them if and when you need to.

The rating is indeed not stored in the file itself. For reasons unknown to me (maybe they are good ones, i don't know), Apple chose not to use the rating tag provided by the ID3v2.3 spec (see http://www.id3.org/d3v2.3.0 section 4.18).

If you export the Library as a text file, you can see (and later edit, if need be) the path to the file associated with the rating (and other) data.

Yes, the library stores the full path to the tracks (see Get Info). One catch is that the path includes the account name, so you need to make sure you keep that the same if you reinstall Windows and want to use a library file from the old installation.

polydorus, I think that is true for iTunes 6, but with iTunes 7, the "hold shift while starting iTunes" method may let you get around that problem (not sure...)

iTunes 7 lets you use more than one library file and put it in other places, but AFIK it stores the path to the music files like 6.

As long as all the files are in the music folder iTunes copes with a change in account name, or the standard Apple method for migrating to a new computer wouldn't work. This breaks down if any of the files are stored elsewhere, so I think it is safest and least trouble to keep the same account name if you can when reinstalling Windows.

Another problem with storing ratings in the file would be multiple users using same library. They could not then rate the songs differently. Saving ratings in library file lets each user rate things different.

Read the spec -- each rating is tagged with an email address; i.e. two people could rate the same song just by using different email addresses. And you could view what the other person rated a song, to see if they liked it or not.