There's no reason the memory wipe has to be the equivalent of re-formatting a hard drive. It's probably more like when you root thru your computer every now and then and delete old files and folders you don't need anymore. Your computer still works the same way it did before, it's just missing some information here and there compared to before.

As for Owen not recognizing him - it was over 20 years later. Droids are commonplace and there's only so many models and colors they come in. I saw a car at a repair shop that was the same exact make, model, year and color as a car I got rid of six years ago. When I got closer and looked at some of the details, it wasn't exactly the same but at a glance I thought it was. The last time Owen saw 3PO was when he (3PO) had the rusty body plates. When they meet again at the sandcrawler, 3PO is gold (albeit dirty) but not the rust color he was 20-odd years ago.