Question --- when you perform this reset ( erase everything option) .... It takes a long time - seems to go through some progress bars ... Then at very end stuck with apple logo. Would one think that everything was erased during the process?
If you mean performing a "Restore", then yes, it should erase everything that's not part of "factory default settings" that the device comes with. I don't understand why it's stuck at the Apple logo AFTER a restore though...
Have you tried restoring from Restore Mode or DFU Mode? To enter Restore Mode, hold down the power button and home button while the device is on, and continue to hold them down after the device turns off and on again. Eventually, you'll see a "Connect to iTunes" screen, which means that the device is in Restore Mode. DFU mode requires good timing to get into, and I suggest looking up a guide on how to do it, because I can't remember exactly off the top of my head. I think you perform the same steps as you would for entering Restore Mode, but you let go of the power button only and keep holding the home button after the device initially turns off. When you've successfully entered DFU mode, however, the device's screen will be completely off, so you won't be able to tell if you've succeeded unless the device is connected to a computer and it shows up in iTunes despite having its screen off.