I made a fresh install, and had all of my data ready on my new external drive
But I did also move all the music/pictures/documents/savegames onto my desktop, then formatted the old HDD. I also inserted a 16gb SD-card I had into the card reader as my music drive, so in effect I constantly have 96+16gb disk space + my external drive for movies & as my backup drive for important stuff.
My laptop doesn't have a dvd-drive, so I had to download a win7 home premium torrent, extracted the image onto a usb-stick and just used the product key under my laptop. It took about an hour to install win7, sp1 & drivers. Usually that takes about 2-3h
If you do get a sata-usb thing, make sure it has both the data & power coming from the usb, it's really annoying if you need a separate power supply as usb has enough power to operate a laptop hdd.