Your host is full of crap, how would they know your vBulletin version is vulnerable to exploits? Any evidence on their claims?
There's no way for us to know that you'll lose settings if you overwrite all the files, we don't know if you made modifications to vBulletin's core files. You could leave the plugins, you may want to check if all the plugins you use are safe though.
There are so many factors in this, it's not possible to know before-hand that you forum will not be "hacked" again. It's entirely possible that you have a vulnerable plugin installed, or a backdoor on your server, or had your FTP login stolen, or have a malicious hook installed, etc.
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