Microsoft do intend to do cheap upgrades to W8 once it is out.
However I have installed an early version of Windows 8 and I think for those used to Windows 7 or earlier they may be in for a shock.
The so called Metro interface is like nothing you have seen in Windows before, and once you get past that to the "normal" Windows desktop you find the "Start" menu has gone and there is no way to start a program from the desktop.
I would try to get some hands-on time with Windows 8 before taking the plunge.
And yes, I would assume the "return to factory default" would take you back to Windows 7 even after you upgrade to Windows 8.
However there are options in Windows 7 (and I assume 8) to take a complete image of your computer and store it on an external hard drive.
See "backup and restore" in the help and the section "Create a system image"