Plain text or HTML. In the case of HTML, an alternative plain text version of the body is automatically created and attached to the outgoing message, as expected by contacts who can't or don't want to use an HTML-capable program to read their mail.
Replies can be initiated in plain text, HTML, or the same format than the original message, the latter being assumed to be the best choice in general. In any case, the format can be changed manually inside the composer during the edition of the reply.