Need help upgrading/updating my Macbook

[dewey decibel]

I have a standard black Macbook, it's a 2 GHz Core 2 Duo (it's revision is Macbook2.1), and I upgraded the ram to 4 GB (maxed out). I'm still running OS X 10.4.11 and need to update. But I also want to replace the hard drive, I have an external that is much bigger/faster and is compatible, I just don't know the process.

So the two things; update the OS and replace the hard drive. Do I bounce everything to the external, install that into the Macbook, then update the OS? Or install the hard drive and then update/reload everything fresh? Some combination of the two? Sell this computer and buy an newer one?

Beyond that, what OS should I get? I'm running Logic 8 with an Echo Audiofire interface (might change that soon though). Also have a more recent version of iLife I'd like to install. Looks like Logic 8 doesn't work on Mountain Lion, may work with Lion, but I think I'm more comfortable going with Snow Leopard on an older machine anyway.

I know this is kind of a lot of questions/info, any help is appreciated.