You're using the filemanager incorrectly, you'll have to use the right pane to select the item you want to copy and the right pane for the folder you want to copy it to.
You'll have to make a HDDX partition first if you want to copy the compatibility files.
If Freestyle was preinstalled, you should be able to set it to autoboot in Dashlaunch.
XeXmenu isn't really required beyond original setup, I highly recommend using Freestyle.
Formatting does not undo any hardware hack, it merely clears games and other data off off the HDD.
Basically anything that can format storage to FAT32 is good enough, iirc GUIformat is recommended at that.
I'd recommend installing an alternate dashboard, Freestyle isn't maintained anymore, Aurora is, the former is more for powerusers, the latter for gamers.
Both dashboards will simplify the...