2007 iMac OS upgrade questions

I have an iMac that was purchased in late 2007. It started out with Leopard and I have since upgraded to Snow Leopard (10.6.8). I have also bumped the memory to 4 GB.

I'm looking at possibly upgrading the OS to Mavericks (10.9) and wonder what caveats I should be aware of. I'd also like to know if anyone knows the likelihood of applications that might no longer work in 10.9.

I've done a time machine backup - is that good enough, or is there a more thorough backup method I should use?

I think I've seen references indicating that I could install 10.9 on another disk and boot from that (while preserving the OS I have now in case I need to revert). How doable is any of this? Any information and suggestions would be helpful.

On a somewhat related topic, I'm investigating getting a larger external hard drive for time machine backups and other storage. I'd appreciate any suggestions as to the best devices to look at that would 1) work with my older machine and 2) not break the bank.

Thanks

 

Any suggestions for external hard drives that will work with an iMac that old? If I have more than one, how do they both connect (assuming they're both firewire)?