I seem to recall that Office would not run from an non-booting volume in OSX. I know when I've installed Office on several Macs with either [a] multiple internal drive or [b] that have external drive connected, only the internal boot volume is shown as a possible destination for the install.
You may get better help on this issue in the MS forums for Office:Mac. They are very good:
Get your new hard drive and mount it in a housing that connects to your PB with a Firewire cable. When an external HD is connected via Firewire it is bootable from your PowerBook.
After you connect the external HD, use Disk Utility on your PB to format the HD to Journaled HFS+. Then use Carbon Copy Cloner app to clone your PB HD to the external HD. Then boot the external HD to make sure everything transfered OK. Then you can wipe the PB's HD and install Leopard on it. Then you can use Carbon Copy Cloner to transfer your files from the external HD to the PB HD
In lieu of M$ Office you can use the freeware NeoOffice. http://download.neooffice.org/neojava/en/index.php
NeoOffice is equivalent to Microsoft Office. It can open Excel files, Word files & PowerPoint files. You can also create these types of files that can be opened by PC users.
Installing Mac OS X 10.5 Leopard
Mac OS X 10.5 Leopard Installation and Setup Guide
After you install the base 10.5, download & install the 10.5.8 combo update at http://support.apple.com/downloads/Mac_OS_X_10_5_8_Combo_Update
The Leopard install DVD should look like this
It has been my experience that moving the executables for application generally doesn't work. If it does work at all, it generally leads to problems sooner or later.
To top it off the executables are usually much smaller then the data. So for the greatest bang for the buck, one should move the data and leave the little executables along where the installer put them.