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Yes, root installs to the system folder on the phone. As for ROM, you'll just have to play around and find one you like. For stock experience, metickmod is untouchable, but if you want more than stock, cyanogen or ultimate droid are good. My personal favorite is simply stunning by chevyno1 though. Right now I am running jeffv2's Gingerbread ROM which is pretty awesome. I heard liquidz's GB ROM is really nice, too.
Sent from my brain, with the help of my Droid running GB...
There is no easy answer to the "which one is the one to go with" question. Like the previous poster said, you'll need to shop around. One thing that I would suggest: roms and themes are two separate things. Just starting out, it may be easier if you find a rom which is already themed. That way, you only have to deal with the one installation.
Start here Custom Roms - Droid Forum - Verizon Droid & the Motorola Droid Forum then look at Droid Concepts (their Succulent Desire 7.0 had four different themed roms) and also take a look at Liquid Frozen Yogurt v1.95, I've not personally tried their roms but they are themed roms. Other people are welcome to chime in with their favorites. There are probably several other really good themed roms that I've tried, but just don't recall right now.