I side with Lasereth and would go with the RAM and OS upgrade. A 60GB hard drive should be sufficient for their intended use. If they start to fill that up, removable drives and a good way to archive data.
My only tip, make sure you have all of the proper drivers before wiping the OS.
edit: You were posting about the drive noise as I was posting, so go ahead and upgrade the drive. Noisy drives suck
