Consolidate will simply take a library that is currently spread across multiple locations and consolidate it into whatever is currently set as the iTunes folder.
Back up to disk might work, but will take a lot of disks.
Here is what I do (also, will this new system be running OS X or Windows? I have only used this method on OS X) I backup my entire iTunes folder.
I install the new OS
I install, update and then launch iTunes and then quit iTunes
I copy the old iTunes folder to where the new one is, and tell it to replace all.
I launch iTunes.
That works for me.