Hi wob,
I have the same computer as you and installing a second internal hard drive was easy. Instructions including a QuickTime video can be found here:
http://docs.info.apple.com/article.html?artnum=75314
It's just a case of setting the jumper correctly on the back of the new drive (to slave), screwing it to the existing drive bracket and plugging in the power and ribbon cables.
You just need a standard ATA (parallel not serial) desktop hard drive. I bought a 120GB drive as it doesn't seem entirely clear whether QuickSilvers can make full use of higher capacity drives using the onboard ATA 66 controller.
It should be cheaper as external drives are often just internal drives mounted in a FireWire or USB enclosure containing an ATA to FireWire/USB bridge. Consequently you're not paying for the enclosure or bridge.