Yes it does this fantastically. iPhoto does slideshows, but you have so much more control with iMovie of the specific cropping, effects, ken-burns, transitions, titles, etc.
iMovie was *made* for this function and is awesome for it.
Question2: To get it back just reinstall from your original disks-doing that shouldn't break anything else.
If you don't have it, you'd have to have an iLife 08 retail disk. (assuming you are talking about iMovie 08)