Per the letter of the code, you must demolish and remove all unused wiring. Period. So technically, you must remove it. Not to say it isn't left in place all the time.
Secondly, it may have been run in a conduit. that's how it was done at my house, which made the replacement very easy... make sure this isn't the case.
And as for the ground thing... I think that's a bit of a gray area. You may be able to drive ground rods outside your shop and attach the sub panel to that, unfortunately every code guy has a different opinion on this it seems like. At the end of the day, most wiring systems have the neutral (white) wire connected to the ground wire bar anyway where the main service enters the house. The whole purpose of the ground wire is to provide a safe, low-impedance way of shorting the circuit directly to ground incase of a wire contacting a conduit or metal J-box (or other things), therefore ensuring an immediate breaker trip. A local ground in your garage should work, with the risk being a difference in potentials between the rods your main service is tied to, and the rods you drove by your garage, which would create a ground loop and maybe some noise on very sensitive electronics.
-Nick