A quick format doesn't destroy all the data on the drive. Depending on how much you used that drive, you might still be able to recover the data.

When bitcoins are lost, are they lost forever? So the total pool of bitcoins will be 21m - your 160 and his 7000?

Yes. The "total pool of bitcoins" is actually less than 21m, considering the lost ones. Does it matter, though? Whether the max is 21m or 20.1321029 ...

Potentially. There's a chance that someone could recreate the same keys for the lost wallets, but the odds are not in their favor (gross understatement). If this happened they'd be able to create transactions moving the bitcoins in the formerly lost wallets to their own wallet(s). However, until someone gets so lucky these bitcoins are locked out of the economy.

No. They are still there, accounted to that address in the blockchain. In the rare event that someone discovers the private key used to derive that address: happy days. In the near term, practically speaking, you can negate them from circulation. It's a very low probability that it'll be spent.

I'm pretty confident that in the future it will be possible to break abandoned wallets.

Break wallets encrypted with a passphrase, or crack private keys? The former is possible for weak passphrases, but if the latter is ever possible that's a Very Bad Thing for Bitcoin.

It may happen eventually, but hopefully we will have migrated to stronger crypto by then. I do wonder what will happen to abandoned coins at that point. Will they become invalid after a migration period, or will they be up for grabs to the fastest cracker?

I meant to crack private keys, it will eventually become viable to spend resources researching/developing an attack vector to break those abandoned wallets. Migration to better cryptos will certainly happen, but remember that the lost wallets won't be upgraded, because they're, well, lost.

Making them invalid would be self-defeating to bitcoin, but it's not bitcoin's fault that some day abandoned wallets will become breakable, there will never be an everlasting bullet-proof encryption, and my point is: It won't happen tomorrow, it may take tens or hundreds of years, but it will certainly happen.

Agreed, though I'm not sure Bitcoin's users/miners wouldn't "vote" to eventually invalidate unmigrated wallets. There's a tradeoff between accidentally destroying someone's legitimate wealth (e.x. a nLockTime'd transaction left as an inheritance) vs allowing crackers to eventually claim potentially enormous abandoned wallets (worth billions, if not trillions of dollars in the future). But remember those unmigrated wallets would also be equally vulnerable to cracking as abandoned wallets.

Perhaps there could be a solution whereby a nLockTime'd transactions could be presented during the migration period. I haven't thought through the details.

Either way, treasure hunting in the future will almost certainly be of the digital variety.

They are pretty much lost, unless a plurality of miners decide to change the rules.

Come one, Arch is maybe one of the easiest distros to break but certainly one of the easiest to fix using chroot from USB live image. Forums are very helpful, and also if some current update is possibly breaking there is a deep post on the homepage discussing how not to break the system and how to recover from a broken state.

A lazy install and a bad Arch Linux update (actually, a misinterpretation of some error messages on my part) reminded me why it was stupid to have /home on the same partition as everything else. Multipartition setups are trivial and will save your data (in my case I lost nothing but some toy OpenCL programs as it was my gaming rig, and most important stuff was kept on a shared partition).