Yes they do install desktop cpu in notebooks, mine has a 3ghz P4.
What limit your options is the PGA2 socket & the 400mhz FSB.
A mobile chip is not enter changeable with the desktop. As for cooling you must keep all of the cooling system clean. Use the best thermal paste you can get. The factory thermal paste is not very high grade.
The biggest boost in performance will be gain with a 7200 rpm drive. Despite what you hear on power drain. Time your self on how long you have to wait for things. You will find a 4200 or 5400 rpm wait time is 50%+ of you work. If this is the case, a 7200 rpm drive will double you productive. The 7200 rpm drives consume 10% more power. Which is a easy trade off a 90% gain in productivity.