Disk Utility in conjuction with HDD replacement

Hello guys!

Here is the issue. I am going to replace HDD in my iBook. Now i am creating an image of the "Macintosh HD" folder (in disk utility i selected create the image from folder). Why i am pointing exactly this? Cause when i selected to create an image from the hard drive (partition) it says that device is busy and not able to make an image (which is strange as for me). Mind that i am doing this procedure from the Installation DVD of Leopard.

Question: is the image created will contain all the hidden system files or it will be an image of user visible files? If i am doing something wrong, give me and idea what to do.

Thanks in advance!
Looking forward to hear some ideas,
Ivan