If the motherboard will support a SATA II drive, get a 500 gb and clone the old drive to the new one, and retire the old drive.
(If the mobo will only support a SATA I drive, a SATA II HD has to have a jumper installed to limit it's data transfer rate.)
Dell's are not known for having a PSU any larger than absolutely necessary to get the stock PC off the store shelf and out the door.
Adding another internal HD and not replacing the PSU could be Trouble.
The one part I've had to replace, more than anything else, in Dell computers over the years, has been the PSU.
Adding ram also increases the load on the stock PSU.
Bigger hard drives are also Faster hard drives, so you want the larger HD as the
OS + Data drive.
It should however, be partitioned into two sections, one for the OS and data and the other one for backups and storage.
Happy Holidays!