Has my server been hacked?

Hi. I got this email (below) from someone saying that my server is attacking theirs. They used my IP in the subject line as well.

Is this what happens when a system is rooted? If I suspect that this has happened, is my best option to reinstall?

Matt

--------------- Hello, I am not sure if you are aware that your server is conducting a vulnerability search and is continually hitting my server. I am guessing that you are unaware of it since the attacking IP is riddled with personal pictures of your self and your sister. Could you please look into this ASAP. Grant. ---------------