This is really good advice. It's a Quicksilver, btw, since it's only got 256K cache; were it a DA, it'd have 1 MB L3 since it was the high-end model (at 733 MHz).
It's actually not an expensive option, Nermal, since a CPU upgrade would cost more.
By the way, you're going to need to add a USB 2.0 card to your computer, which you can get from
http://www.otherworldcomputing.com. This is because the product states it requires USB 2.0. You also might want to add another 512 MB of RAM.. or 1 GB, adding two 512 MB sticks, for a total of 1.5 GB assuming you've got a 512 MB stick and 128 MB in there already (obviously replacing the 128 MB stick).
I assume that if this is your main machine you're probably(?) running Tiger, but if not, you need it for this option to work... it requires Mac OS 10.4 or later. If you're not running it, I'd recommend upgrading to Tiger, which is a pretty nice step up from Panther, and an enormous leap from Jaguar, assuming this is one of or your main computer.
Edit: Hah, okay.
An internal drive will run potentially faster than a FW drive (especially FW800), however, if you buy a brand new drive, it will be bottlenecked by the on-board ATA/66 controller. Still will be faster than the FW400, though.
However, internal vs. external firewire makes no difference, except as you said the ability to link up with any other computer (though you can do so with target disk mode if you physically connect the two computers via FW).
Adding RAM should speed you up, especially if you're running Tiger and running apps like that... the cache you haven't been able to upgrade without a CPU upgrade since the Power Mac 9600, 12 years ago (and even then, you wouldn't want to, since the slow in-line L2 actually slows down operation when a G3 or G4 upgrade card is present)