You don't say what you're using your 17" iMac for...that might make a difference.
I don't think I'd replace a hard drive on a computer that's nearly 7 years old...but, maybe that's just me. If it's that old, the odds are you've reached the end of the line as far as OS upgrades are concerned. And, without having newer OS upgrades, there will be some things you won't be able to take advantage of (iCloud comes to mind).
But, then...everyone's different.
Replacing an iMac's hard drive isn't quick and easy and the cost reflects that so I'd probably not bother replacing it. Instead I'd get an external drive. If you are simply running out of space, consider getting a USB or FireWire drive to hold your media (music, pictures, and movies). That would probably free up a considerable amount of space on the internal drive. If your drive is getting flaky consider getting a FireWire drive (much faster than USB) and use SuperDuper to clone your internal drive to the external and then boot from the external.