Getting more memory would help a lot more than another hard drive, but that may not be the problem, but it would spedd things up when you use a few programs at a time.
Have you checked to see that you don't have any trojans/viruses on the pc?
If you want to upgrade to XP, do a new install rather than just an upgrade. If the pc is running slow because of software/virus problems that is a sure way to correct that. Just make sure to backup everything you will need.