I have created an atv-usb patchstick using the standalone atvusb-creator application.

(1) If I use it, what exactly will happen to my ATV?
(2) Is the current content erased?
(3) How do I restore my ATV to its pre-patched state?

see Issue 260 - atvusb-creator - what exactly does the patchstick do to my ATV and how easy is it to undo? - Google Code

I think we have already discussed this.

Do you mean "we" as in "you and I" or "we" as in "the members of this forum" (that is, you are saying that this issue has been discussed before I and I should have found it during my searches for this information)?

If 'we' do a forum search on patchstick we will find all the info you need.
The post "XBMC Patchstick creator for Windows released" is particluarly interesting.