Emmm... since M1 could be the problem, maybe you bin the utility for M1 for related applications and see if other applications (ie your image editing softwares) are affected.
Suggest TS give M1 a call to troubleshoot. If they are honest about some software bugs causing your programmes, they will guide you along.
As for reloading software, you should do this if you are certain it is a corrupt software (ie Mac OSX). Just plonk in the DVD that came with your ibook and follow all the prom. You do not need to delete anything or bin anything before the reinstall. It will prom you for it.
As for external HDD + casing, this is something I do not recommend as you do not seem too techie for it. Remember, the new HDD that you want to buy from SLS has zero mac related software in it. OSX will not just work when you boot from an external drive by plugging in. Its like, "hello," its empty inside your new HDD.
Also, I hope I am not giving you the wrong advises as you seem kinda lost. Well, ok, call M1 to help you. If no go, go to any apple care centre for help and pay the fee. Dont try anything more with DIY repairs if you really are not quite sure how to get things fixed.
There are also tricks to flash your bios, but I dont think i wanna confuse you more. If your mac kah...boom... i can only pay you eighty cents for kopi-o. :bsmilie:
All the best, sir!