Yes, exactly. if you still have access to old system, make backup again not via tar but via mkfs.jffs2 directly to card as explained above (trick with mounting /dev/mtdblock4 again to /opt is intentional to get rid of /proc /sys etc)

The restore part is a bit tricky, you can't boot from system you want to erase and reflash so either you copy system to card and boot from it just to do the restore or you can try the emergency usb networking mode of bootmenu to boot only to initfs, ssh in via usb networking and try to restore backup from there.

The only catch with using the recovery mode is that flash_eraseall and nandwrite is not installed in initfs so you need special binaries (initfs is uclibc based) and scp them to device to some temporary ram storage (/tmp) and run them from there.

Also for windows you need .inf driver file for RNDIS (google for linux rndis inf)