@dlowan,
Well you already seem to be doing the first thing I recommend, which is to run the OS separately from your files. This way, no matter how bad the software problem, the OS disc/partition can be formatted easily without impacting your files.
So I'd keep moving all your files (as in documents etc, not program files or OS files) to the new internal disc, and keep the old disc used for OS and programs
only.
You say you can't install more RAM, but why? Is it because you don't have any slots left? Or is it some other hardware limitation? And how much do you have?
RAM is more than likely your bottleneck, and if someone told you you can't put more RAM in just because your slots are being used then you might want to consider getting whole new sticks. Let me explain:
Let's say you have two 256 MB sticks giving you 512 MB of RAM, there may not be any more room to put in an additional stick of RAM, but you may be able to replace them with 512 MB sticks of RAM (or more).
Computer speed is largely based on:
1) RAM
2) CPU
3) Graphics Card
4) Disc speed
Now depending on what your CPU is, this could be a big bottleneck, but for years this hasn't really been a bottleneck for average users, so you'd have to be dealing with a VERY slow processor for this to be a factor. If you are, you should really stop spending money on this computer. For almost any other average user's bottleneck, it's the RAM.
Graphics cards make a big difference on graphics intensive things like high definition video, gaming and photo or video editing, but they don't tend to have much impact on the average user. In fact the only computer I have with a decent graphics card is unused, and my other 3 computers just use onboard graphics and I have no problems with speed.
Disc speed is an issue for some power users, but for most average folk the slowest disc around isn't going to be very noticeably different from the fastest.
So, more than likely, you probably want to be looking at the RAM as an upgrade. If you tell me what you have, I can make a better recommendation (right click "My Computer" and select "Properties" and it will show you on the "General" tab. Note that the processor and RAM info may take a second or two to show up on a slower computer).
And the good news is that RAM is very cheap. Have a look
here or
here for examples. I'm seeing 4GB for under $30, and that's at least twice what you need (if you are running XP, I recommend 1GB minimum unless you like waiting, and 2GB maximum unless you have some crazy RAM needs).
And if you can't upgrade through RAM, then just wait and buy a new computer. I can buy a very powerful computer for $300-$400 stateside. I know you guys have crazier prices but I still think you can get a great computer for under $500 and an upgrade here or there to your existing one will soon add up to the cost of a new one.
Here's an example of what I mean. It's $299 and it comes with "AMD Athlon 64 X2 4200+ / 3GB DDR2 800MHz / 250GB SATA II / 20X DVD-RW". All you are missing is an operating system (which I imagine you already have access to) and you are ready to roll for the cost of upgrading your existing computer a few times.
I don't know what you have, but based on the size of the original hard drive, I suspect you are at that point where it makes more financial sense to replace the whole thing and even Australian prices can't be changing the basic financial reality too much, for example I did a quick ebay Australia search and found a computer that blows yours out of the water for $399 AUD.