Windows is a bit better than it used to be in terms of stability as the number of installations and uninstallations increase, but IMHO it's still a great idea to keep it to a relative minimum. At bare minimum it makes it easy to back up.

So, in that vein, what are some good portable games to play? I've found some good ones here: http://portableapps.com/apps/games But I'm always looking for more. I know that pretty much any DOS game can be made portable easily.

Also, why doesn't GOG permit us to have installation free games, at least for the DOSBox games?

You have to reinstall Windows once in a while anyway. Even if GOG provided us with installer-free games it would extend maintenance by few months tops.
Also, they won't provide it as it would require extra support, and they don't want to bother with extra load. Also installer = convince.

Jagged Alliance 2. Copy the installation folder to a usb stick, and take it with you.

That used to be the case. My current install was only reinstalled yesterday because of a HDD failure. Up until the drive started to go south, I wasn't having any need to reinstall the OS. Which is something that wasn't true since they made Widows an OS. Interesting, I'll have to see about what other games work like that. I can't recall if I have JA2.

I remember a while ago when I obtained a copy of Sheep Dog n' wolf on PC and played it on my XP system I was very surprised when I put the CD in, and a launcher popped up with the big button "play"

So I clicked on it and I was playing the game without installing anthing or specifying any directories, I was amazed as this was the first time this happened to me

Disc version of Blood 2, you can't install it on new systems as it comes up with an error saying can't be installed on a NT Based System.

Literally copy the entire contents of the disc to a folder on your hard drive, then browse the folder for blood2.exe, double click it and away you go. Works fine, saves and you can set all options etc without issues