For video editing, the other poster pegged it pretty squarely. It's not so much about the amount of free space, as being able to access that data as fast as possible, which would tend to rule out external drives.
It's also one of those few exceptions to the defragmenting rule, where defragmenting actually will make a tangible difference.
I would disagree with your uncle and father, assuming you have ample room for the swap file to grow. I also still think this is a completely pointless discussion. Again, no offense, but there HAS to be something better you guys could be talking about. You may as well be arguing about whether the left or right urinal in some restaurant is better. And believe me, I get the whole intellectual curiosity thing, but there are limits.
Oh, and yes, video editing is CPU and disk intensive. So a faster CPU and faster hard drive -- SCSI over IDE or SATA for example -- are the two areas you want to focus on to improve performance. I don't know that having multiple cores helps all that much unless you're using an editing program that can take advantage of the parallel processing power it provides. One other thing that would really help, is running a 64-bit OS and using a 64-bit video editor. If you can find drivers for the 64-bit version of XP, or you installed the 64-bit version of Vista, and there's a 64-bit version of whatever video editor you use, you could see probably a 1.5-2 fold increase in overall performance just by changing operating systems. You can read up on all the technical details yourself if interested, but basically it means the CPU only has to do one operation instead of two for every frame in the video. So you can imagine how that would add up very quickly at around 24-30fps.