I believe on the Panther Upgrade CD is an option to do an Erase and Install which will wipe the drive out first, format it (HFS+ Journaled) and then Put a fresh copy of Mac OS X.3.x on it.
You can just copy over your Home folder and you'll have everything (Docs, Photos, Movies, Music, your preferences, settings, Mailboxes for Mail, any spelling words you added, Safari Bookmarks, etc..)
I usually just copy over my Documents, Movies, Music, Photos, and Library folders. Then I can just replace the new Documents folder with the old one. I do that for every folder EXCEPT for the Library folder! That can be a little dangerous since it might conflict with OS X.3 if it has OS X.2 stuff still in it. But its perfectly ok to transfer things like bookmarks, OS X Mail Mailboxes, and things like that.
Make sure that you do do a Erase and Install. Just doing an upgrade will only create a ton of problems for you down the road!