Can I boot iMac from external SSD?

Running from an external Thunderbolt 3 SSD should be indistinguishable from that iMac's internal storage.

i also read that the hard drives are replaceable in the imac?

Yes, with difficulty, but first determine what you have. Fusion Drive, or...? For example the hard disk portion of Fusion Drive may be faulty. In any event it's probably fixable, but in the meantime install macOS on an external Thunderbolt 3 (USB 3, with the lightning bolt symbol) SSD and boot from it.

Yes they do. That's the way to go. It will be a much simpler and far less expensive solution than cracking open your iMac. You can continue to use it if and when you eventually decide to replace your iMac, so factor in its capacity for anticipated future use.

On an 8 year old Mac it really makes very little sense to spend money on it. Have you considered replacing it with a new M4 Mac mini, they start at $499 ($799-999 for a very nice one with adequate storage) and another $300 for a brand new display and you have a killer system. Far better than your 2017 iMac could ever be.

This is the direction I would move to rather than investing hundreds of dollars in an obsolete iMac.

I wouldn't partition it at all.

16 GB won't be enough for anything. Nothing less than a 250 GB startup disk ought to be considered. Twice as much will be adequate; 1 TB comfortable.