It depends what speed the flash based hard drive is rated, but in general, professional hard drives (eg 2 x 15,000rpm raid 0 over a SCSI ultra320) have higher sustained data rates than flash based drives. However, flash based drives have higher random access rates for retrieving smaller files. The hard drives in the iPod are much slower then most desktop drives, probably 3600-4200rpm, since it would take a lot of power to get a high speed drive going, they have a lot more heat and potential for damage when being moved around, and 1.8 inch form factors have always been slower due to the confined space for the head / platters to move.
I believe that hard drive based iPods use small flash memory (ram) chips to buffer the songs anyway, as they have to be sent through the audio codec chips and output to the headphones. Either way, songs are such small files that they instantaneously load. Even movie files on my iPhone load up right away. There will be no problem having songs quickly load on the iPhone.
As for space, what's the problem? 7.3gb - 5gb = 2.3gb. You will have 2.3 extra gigabytes of space left after you transfer your library. What's to ask? You could even rip a few movies on there and copy over a couple hundred pictures. I've got about 2.5gb of music, 9 movies, and about 300 pictures on mine. Again, I'm not sure what you're asking here since you state that you have less space in your library then the iPhone holds?