Yes, we use formal letters - on paper - in the business world every day. And yes, the format of the letter is important to convey the "business-like" tone of the letter. In fact, important letters to customers aren't supposed to go out without being run past me or one of my colleagues to check the grammar and the format and such things to ensure it represents a professional image.

I would say that handwritten letters are reserved for thank you notes and letters of sympathy. You may use e-mail for letters of congratulations, but a handwritten one is still nice too. I would never send a business letter that was hand written.

As more people use e-mail for more purposes, the "formal e-mail" is probably being use more often. And as with a letter, a structured format, with a salutation and a closing - not to mention full sentences properly punctuated and capitalized, and without any "u r" type nonsense - will convey that it's a business letter.

If ever got an e-mail from a business that said "Dear Customer, ur account has been reviewed and we need 2 contact u. Do it quick." you can believe that I would hit delete pretty quickly.