applicationsmacos
I've just downloaded and installed the Mountain Lion update from the Mac App Store, but when I can't find it in my applications folder.
I want to copy installESD.dmg to be able to perform a clean installation.
How can I find "Install OS X Mountain Lion" (installESD.dmg) in the applications folder?
Installing cleanly gives you the advantage that you will know if an error is due to the "as-shipped" condition of the software before you add your data and applications to the mix. The installation of a new OS is the primary time when people notice corruption of a filesystem or other hardware type errors since a machine can often keep running well with some little errors. But relinking all the kernel extensions and drivers and knowing that your accessories and applications will all take to a major new OS is a lot of change. Spending a little extra time up front can help isolate issues if you have them.
By running the migration later, you have more control over things and can also choose to hand migrate anything first that you don't trust the tools to automate.
To answer the question in your update "Can Time Machine do selective restoring?", Migration Assistant (in /Applications/Utilities) can restore data from a Time Machine backup, with some control over what is restored. See Apple's HT4889 for some details.
You also asked: "If I restore my entire home folder, will I also be restoring the faulty settings related to the crashing apps?", sadly, yes this is a possibility.
"Can I recover selective apps from Time Machine?" I don't think so.
Best Answer
It gets removed once you perform the update. You will have to redownload it. It may tell you it's already downloaded, use the Option key and select the 'Downloaded' button and you can download again.