just going to weigh in here, I have considerable training and experience in the area.
Your power supply is fine. A 450 power supply should have been fine too. The previous poster had a broken or dieing supply. 800 Watts could power 4 monitors, 2 graphic cards and 3 or so HDs. Overkill to say the least. A 450 watt one will power a really high end graphic card, 2 hds and 2 monitors (im well aware monitors plug in, but they draw power by increasing the output of your graphic cards). Graphic cards are the single biggest draw on power, followed by monitors, really really really distant third is hard drives. Its never an issue.
You could upgrade to a better ps with no negative affects, but its a waste of money, dell probably just didnt want to get into details with you.
Easy way to transfer files. Install the new one, swap all the files, install a new OS on that (windows), pull the old drive after making the new one the master. That is a lot of pointless work.
Easy way to get what you need out of this. Put in the new drive (you're running IDE youre going to have set master and slave physically on the drive, its a pin system). Its easy if you know what you're doing, if you dont you have to look up your drive and figure out the settings. I still think this is the wrong way to go, you're going to be confused. Installing a hard drive isnt tough but for someone who has no idea about the insides of computers you're going to be pretty confused. The only more difficult thing is changing out processsors and thats actually easier because there are no software changes to make.
I'd suggest this.
Buy a hard drive. DO NOT BUY A CHEAP ONE. Deals can be had on computers from time to time. You literally get what you pay for ALWAYS with hds though. The cheap ones are supposed to last 3 years, more expensive ones can last well over 10.
You need an IDE drive. Not SATA, make sure you know this, the salesperson wont have a clue.
Install it ALONG with your other drive in their already. Here are some benefits. You get a virus, your computer dies. You lost every single picture with your current set up. Viruses attack the OS though, so if you put the pictures on your second drive if you lose your OS you dont lose your pictures. Scenario 2) computer dies, exact same as above. There is no downside to having 2 drives. I've had 2 drives in every computer Ive owned since at least 1998, probably more than a dozen comps. All it does is add an extra drive to your "my computer". That entire drive could be pictures and next time you get a computer all you have to do is pull that drive out, and slot it in the new one!
And... Its like 40 dollars to get this installed by someone who knows how to do it. Just pay the 40 bucks. The place I buy from installs anything I buy later for free. Its not a big box though (which is good, most expensive place to buy computers are big box stores). Im not sure you'd have a similar option there without having a relationship with them, but you can get it done cheaply. Again, do not take it to a big box unless you want to pay a lot. As for where to buy, find a mom and pop place and see what they have on their price list. Explain what you want, dont get the most expensive, just get middle of the road which will be high quality. If you really want to do it yourself, ask a lot of questions and be ready to take some pictures and post them because that drive in there now is going to be beyond most people's memories.
couple other things. Backing up on cds is kind of outdated on this point. They deteriorate in as little as a year to lose some files, this is because the ones you buy at home aren't pressed, thats why ones you buy pre done like games or music, are shiny on the bottoms, these aren't. Its just dangerous to back up on cds or dvds and rely on it for anything over 2 - 3 years. Its a last resort for transfering files if you cant get a network going but mainly they're for transport and immediate use. It woldn't be uncommon to burn a cd worth of pictures and to have 5% be unreadable after a year. Its an awful back up system. As for hds dieing, it happens, but they actually dont die like a tv does. Usually 99.9% of the drive is recoverable and they never die unexpectedly. I do use two computers though. 1 backs up everything and is used in a limited capacity when im moving about (its a laptop). One desktop handles media like movies and downloads everything to screen it. Third is the powerhouse that I use for functionality.
An external hard drive will cost more and be significantly smaller than what you can get for an internal, probably close to twice the cost per mb, but it will be supremely easy. Plug and play, move to whatever computer you want in the future.