Yes that will work, but if you desire something even simpler I offer the following.
If you purchase something along the lines of a Western Digital Essentials portable drive (250Gb drives are usually on sale at Circuit City or Best Buy or both for about $99) you can easily format the new drive and SuperDuper (or Carbon Copy Cloner) it to the new drive. Then remove the drive from it, and swap the existing internal with the new drive and put the old internal in the WD case. That way you have a valid backup already (your old drive) in an external case and a larger drive internally ready to boot.
I have done this with several client machines recently and it works great since the WD externals use Scorpio line SATA drives and are pretty easy to swap into and out of the WD portable drive cases.
Just wanted to provide another take on this!