Does "Erase All Data" feature on iPhone disable "Find my Phone"?

Solution 1:

The 'Find My iPhone' app on the iPhone itself does nothing to affect the ability to locate/remote message/remote wipe the iPhone itself. The 'Find My iPhone' app is a client to simplify the functions of doing so for other devices.

In order to actually use those features on the iPhone itself MUST be configured via Settings: Location Services > (down at the bottom) Find My iPhone. Only by enabling that will you actually be able to locate your phone via another iOS device, or at icloud.com;

Solution 2:

Yes. Enabling this option is both risky and safe. On one hand, you risk losing your phone/data forever, but on the other hand that individual will not be able to access your data or use your phone. It's your call, but I'd recommend leaving it off so you at least have a chance at getting it back. You can always wipe out your phone remotely with Find my iPhone without having that option enabled.