New/old HD for Core Duo macbook

In my Macbook Core Duo, I had an original 80GB Harddrive, that I filled up. I replaced the HD with a 500GB Harddrive a couple of years ago. Recently the 500GB HD has failed. I got the spining clear wheel during startup at the Apple screen, and never got to a login screen. Disk Utility said the drive had failed. But, when started with old 80GB HD (in an external enclosure), the 500GB drive is operable, and I seem to be able to acess the 500GB drive from the 80GB drive. Therefore, I am not certain the 500GB is completely kaput.

I have now installed the old 80GBHD, physically into the laptop and I am up and running again; while I figure out what is going on with the 500GB drive. Luckily I have everything backed up, and no data has been lost. The newly working 80GB Macbook will now be used as a secondary, family and kids, computer. The Start-Up Disk is OS 10.4.6; the 80 GB currently is OS 10.5.8; the 500GB HD is up to OS 10.6.8.

My question is: Should I delete the data on the 80GB HD and use the original OS install disc to start factory fresh? OR, should I not delete anything, because deleting data won't help anything? Do I lose all my updated OS's? Am I able to restore the OS upgrades somehow, or do I lose them when I use the original start up disk? Does deleting all the music and photos on the 80GB help the system run easier? Or is that a misconception of mine, that deleting data will improve overall computer performance. I have a new MacMini that is my primary system. Thanks for reading this and for your advice. Please tell me the best way to utilize my older laptop and what OS to start from. Thanks again. Tim in Chicago