The 2 GB RAM will speed it up. I'd recommend that you buy it from elsewhere though, as you'll be able to get it cheaper. You'd also be able to sell the 2 x 512 MB sticks that come with the MB in the first place.
If either of you get the Higher Education discount, I'd recommend a low end MBP, possibly with an external USB/Firewire hard drive. You get a better processor, better graphics and a bigger, LED screen.
Apparently the difference between 5400 RPM drives and 4200 RPM ones is quite noticeable. I'm afraid I can't verify that, as I've only ever used a 5400 RPM one. But if it's true, you could quite easily buy an external USB/Firewire drive. If portability is an issue, you can get ones that don't require separate power supplies. I'd recommend the Western Digital Passport range.
The advantages of an external over a bigger internal drive are that it'll be faster, and you'll get more space for the same amount of money you would have spent on upgrading the drive to 200 GB.