Try it both ways. Install without cache2cache with a minimal load of apps. See if you get the errors when you install from the market.
Then do a Nandroid backup and flash cach2cache. Try to install a few apps from the market and see what happens.
If you have eStrongs or Root Explorer, removing xtrcache2cache is not all that hard after you run the test. Of course you could just Nandroid restore, but you just need to erase the file /system/etc/init.d/07cache2cache and restart the phone. You definitely want to do this only when you have enough room in /data for your apps plus their Dalvik cache, though, as it might get ugly after you restart and find that there isn't enough room in /data anymore. That's why running this test the way I explained earlier (with a minimal set of reinstalled apps) should be ok. And, of course, the Nandroid is good, too.
I've been meaning to do this but have been too lazy to do it yet. I may do it later, before I flash 1.9.
It may mean nothing until you can test with market updates - I was having more problems with those than with new app installs myself.
If you have anything on it you want then back it up on your computer. I've never needed to format my card. What method did you use to root with? Tell us how you went about rooting and then flashing GSB. You don't have to flash cache2cache but some do. When you flash GSB, you have to flash Gapps immediately after, before you reboot. Let us know how that's going.