I assume that you're going to move the application into Windows or Browser operation which will be a complete rewrite with the possible exception of background processes that don't have a front end. Going from procedural to modern day operation will require quite a bit of thought on going with windows vs Web, how the screens should flow, etc.

Current DF versions can still use the DF embedded database. If it's still in the old 2.3 format it will be automatically converted when you go to v3.2 as Marco suggested.

Yes, SQL is the way to go and it can be a relatively easy conversion depending on the product you go with - MSSQL, MySQL, Postgres, etc. You could do the conversion and access your data from both the old and new versions.