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Doing a factory reset will not erase anything on the SD card. You are going to have to format the SD card separately. You can either remove the SD card and use a SD card reader to connect to the computer and assuming you are on a PC, go to Start>Run>"Format X:". With the X being what ever drive the SD card is in. Or, on the phone go to, Settings>SD card & phone storage settings>Unmount SD card>Format SD card.
But, yes, I would definitely recommend doing a Factory Reset, maybe even a couple times to be sure.
For some reason, even after a complete wipe of the phone (boot,system,data,cache), my wallpaper stays. I don't know how it survives me wiping everything, and I've also tested with no sdcard installed. Also the launcher seems to retain my desktop configuration from when I first setup the phone. Again, I don't know where these settings are being saved.
Otherwise, all personal information is removed from the phone. This post was a 'just in case I use a naked picture of my girlfriend for my wallpaper' warning.
Your wallpaper and phone setting stay because you have it sync'd to the google cloud. When you sign in your gmail account on your phone it automatically transfers all that settings back to your phone.
When you get the phone ready to sell make sure you go into account settings and remove your google/facebook/twitter accounts from the phone.