Depending on the limitations of your laptop and whether you plan to upgrade to a newer OS, the age of your current laptop, etc., the answer will be different. If you're running with 512K and a 40 GB hard drive, you're obviously not running Vista or Windows 7. Does your laptop support SATA or are you forced to stay with IDE? If you can go with SATA, you could get a 500 GB drive for $65.
I wouldn't want to run Vista or Windows 7 with less than a 100 GB hard drive. Not knowing the answers to the above questions, I'm inclined to believe you'd be better off getting a new computer because it sounds like you have a pretty old PC that as soon as you fix one bottleneck, you're going to run into another one. XP support runs out in 2014, so you'll probably have to upgrade to Windows 7 or 8 in a little over a year in any regard.
After a great deal of research and much disagreement amongst various people it seems to me that there is very little difference in the speed of two hard drives of the same size, one with 5400rpm and one with 7200rpm except when booting up, then the 7200 will be faster. The down side is that it will be hotter and use up more battery life. Once the computer is running and various programs have been accessed, then it is the RAM that will determine the speed, if there is enough RAM to handle all of the applications that are running, then the speed of the hard drive is not really a significant factor. But I am not so sure what happens when the size of the 5400rpm hard drive is twice the size of the 7200rpm hard drive.
I am looking at upgrading the hard drive in my laptop (40GB) and my two choices are either a 80GB at 7200rpm or 160GB at 5400rpm. The price difference is only $10 which makes that not a factor. It has always been my belief that heat is a factor in hard drive failure and I would imagine that in a laptop it is harder to dissipate heat than in a desktop and that this is the reason that most laptop hard drives use the 5400rpm drive. My current laptop has a 5400rpm hard drive and I have had it on my lap for hours without it getting too hot for my lap. With a 7200rpm drive, I am not sure what the heat factor would be for long periods of time in my lap. As far as battery life that is not an issue since I rarely use it on battery. A major question is "is 80GB enough size for my needs?". At the present time the answer is yes, but down the line is anybody's guess. The laptop is only used when I do extensive travel (once a year if that often) and I use it to access the internet for email, general information, banking, quicken finances, do taxes, download photos from cameras, work on spreadsheets, and word documents. Nothing that would tax the computer. I am leaning toward the 160GB drive. Also, I will be upgrading the RAM from 512 to 2GB. Your thoughts will be appreciated