Method to Upgrade Mac OSX 10.5.8 to 10.6.3 Using a New Hard Drive and Time Machine

This may be a stupid question but here goes:

I currently have Mac OSX 10.5.8 and I bought the DVD from Apple to upgrade to 10.6.3.

I have a bad sector on my main Macintosh HD that is unrepairable according to Western Digital's diagnostics. Performance has not been affected but I bought a new drive just to be safe.

I have the entire computer (in its 10.5.8 state) backed up via Time Machine on an external drive.

What is the best method to install the 10.6.3 OS?

Should I:

1. Pull out the 10.5.8 drive with the bad sector, insert the new drive and install 10.6.3, and then restore the main "Macintosh HD" using Time Machine
2. Pull out the 10.5.8 drive with the bad sector, insert the new drive and re-install 10.5.8 (using the old discs), restore the computer using Time Machine, and then install 10.6.3.

The second method only sounds appealing with the added reassurance that everything will be restored properly prior to upgrading to 10.6.3. Is one method better than the other?

Thank you in advance for your help!