Should I avoid hot tap water when making baby formula?

Yes. Hot tap water is 120 degrees or more, so it would make a formula too hot for a baby to drink. If hot tap water is used to mix formula powder, then one must let the formula cool down to body-temperature before feeding it to a baby.
Yes. Be careful not to overheat your baby's milk as this could cause burning from the hot water. In addition, it is best not to microwave the formula as inconsistent distribution of heat could pose a problem. If the water is warmed, be sure to test a few drops on the inside of your wrist to check the temperature before giving it to your baby. Also, set your water thermostat to no more than 120 degrees.
No. Unless you have really old pipes in a really old house, no. The idea is that many years ago warmer water could leach out lead solder from pipes-- but lead hasn't been used this way in a very long time. Under ordinary circumstances, warm tap water is fine for mixing formula. It doesn't have to be boiled, either! Just make sure the temperature isn't too warm before feeding.