To answer your question:
Up grading your CPU will not cause you to loose any information.
If Bios reflashing is required be very carefull and read up before making any changes. A backup of your information would be wise.
Depending on your MB and OS some settings changes might be required to enable dual core processors to be fully functional.
You won't loose any information, but seeing as that 3.06GHz P4 must be the 533Mhz Northwood chip (if you posted correctly) that is mPGA 478 so socket 478. It won't work with Core 2 Duos/Quads since they are LGA775.
Likely his board is a 915G or 915P based, and in that case he won't be able to run any Pentium Ds or Core 2s. If by chance it's a 945 or 965 board he might be able to find 65nm processors that work with it, but I'm thinking 45nm Core 2s are out of the question (although all my assumptions could be wrong).
Well according to that link your motherboard has the i915P Northbridge, and it lists that its only compatible with Pentium 4. So I would guess other than a faster clocked Pentium 4 you've got no upgrade path without a new motherboard, and that would require a fresh install of Windows.
Well, it looks like your stuck with P4s up to an 800MHz FSB. I don't even think it supports dual cores, but it might. If you look at the updates page for a BIOS update the release notes simply say
Updates processor microcode to support newer Intel CPUs.
but it doesn't list which ones. Perhaps if you download and extract it there will be a list of supported CPUs in the release notes. Anyway I doubt it would be much better than a dual core P4. I think it's time for you to get a new motherboard, CPU and RAM.
^Dude, that's already been addressed in this thread. You need to read a little closer. It's as simple as this, in caps for emphasis so you remember:
THE INTEL 915/925 CHIPSET DOES NOT SUPPORT DUAL CORE PROCESSORS.
here's something else you should know:
THE INTEL 945 SERIES CHIPSET DOES NOT SUPPORT QUAD CORE PROCESSORS.
and finally, a little bit of odd trivia:
THE INTEL 865/875 SERIES CHIPSET SUPPORT DUAL AND QUAD CORE PROCESSORS.
weird eh? After 945, there is no chipset limitation. Every intel chipset thereafter supports dual and quadcore cpus.
Try a fresh install, that helps most computers more than a lot of computer users understand. A lot of 'mom and dad' computer owners needlessly replace their machines because they've 'gotten slow' even those the demand on the machines is low and has not changed during the lifetime of the computer. Well, I guess it's good for the economy. Try it out, if it still can't cut the mustard, then it's time for a new system.
Upgrading your CPU will not affect any installed OS or data on your hard drive. When you boot your OS for the first time, it will see your new CPU and respond accordingly.
However, if you decide to upgrade your motherboard at the same time, it might be a good idea to back up your data and reload your OS once you've replaced the motherboard. You may have existing motherboard drivers installed on your OS that could potentially wreak havoc with a new motherboard.