oh yeah, gonna make a huge difference.
1Gb is very very little nowadays, on my system Safari alone often takes up to 1.5Gb if you include flash and all that.
The hard drive noise is the paging taking place, which is the cause of your slow downs.
I am not sure what's the maximum you can have on your system, but whether it's 2 or 4, go for the maximum anyway, 4Gb is still on the low side for good performance these days.
Also, don't make the mistake of upgrading to Lion or Mountain Lion, that would just slow down your machine even more.
Next step would be to change the drive for a SSD. Not only would it improve performance when you read/write files or open apps, in your case it would also improving the paging performance when you run out of memory.
In any case, max out RAM first, and if there is money leftover, upgrade to a SSD, you can probably extend the life of that machine for another 2-3 years.