1. No, don't delete the entire folder.
2. If you go to C:\windows\temporary internet files and delete all that stuff, the cookies go too.
3. No, You can't delete index.dat from within windows.
This is from my previous post:
IMPORTANT: Before you delete Temporary Internet files or cookies, keep a record of your user IDs and passwords, which are stored in the cookies.
One reason to get rid of cookies is that some contain "spyware" that reports personal data and your surfing habits back to vendors and web sites. You don't have to delete cookies daily, but if you never delete them, you will wind up with thoudands of them. And even if they're only 20 bytes long, the minimum file size is 16KB. You do the math! One very good program that is free and will get rid of the spyware applets is AdAware. Download it at www.lavasoftusa.com. I don't run it at startup, or in the background. I just use it during and after web surfing.
This is also from an earlier post, and more specificaly addresses your question:
You HAVE TO use a startup disk to delete index.dat files. [Index.dat files contain ALL of the web sites you visit!] You can do this manually, which is a real pain in the ass or you can do it with a batch file.
I put this batch file on my startup disk:
(you can even change the autoexec.bat file on the startup disk to run this automatically!)
:: DELINDEX.BAT * Janaury/February 2001 * Written by Renaissance Man
::
:: DELETES Index.dat files which keep getting bigger and bigger.
:: Windows recreates these files when needed; a newly creaed index.dat
:: file is 16 or 32KB; I've seen some that are 20 times that size.
::
del c:\windows\cookies\index.dat
del c:\windows\tempor~1\content.ie5\index.dat
del c:\windows\history\history.ie5\index.dat
del c:\windows\history\history.ie5\mshist~1\index.dat
*****
You can copy and paste this into a batch file. And you can add lines to delete thumbs.db (which are in your "My Pictures" file[s] and keep getting bigger and bigger, even if you delete pictures. However, you can delete thumbs.db from within windows.
And while you're at it, get rid of .gid files, which are created everytime you click on help.