Video from youtube:

How to reset HTC Desire to factory settings

Or from official HTC Desire page:

Performing a factory reset (hard reset)

If you're passing your phone on to someone else or your phone has a persistent problem that cannot be solved, you can do a factory reset (also called a hard reset). This returns your phone to the state it was in before the first time you turned it on.

Note: Factory reset will not remove the data and files that are in your phone’s microSD card.

Factory reset is not a step to be taken lightly. It will permanently delete all your data and customized settings, and will also remove any applications you've downloaded and installed. Be sure to back up any data and files you want to keep before you do a factory reset.

Performing a factory reset via settings

The most convenient way to do a factory reset is via the phone settings.

1. From the Home screen, press MENU and then tap Settings.
2. Scroll down the screen and then tap Privacy > Factory data reset.
3. On the Factory data reset screen, tap Reset phone, and then tap Erase everything.

Performing a factory reset using phone buttons

If you cannot turn on your phone or access the phone settings, you can still perform a factory reset by using the buttons on the phone.

1. With the phone turned off, press and hold the VOLUME DOWN button, and then briefly press the POWER button.
2. Wait for the screen with the three Android images to appear, and then release the VOLUME DOWN button..
3. Press VOLUME DOWN to select CLEAR STORAGE, and then press POWER.
4. Press VOLUME UP to start the factory reset.