I would go for an SSD since its much faster. If you can buy Intel X25-M 80GB SSD, you would have a formidable systems performance. You can still use large mechanical drives for mass-storage, but your applications, operating system, games and other active documents would be on the SSD.
If you have an ultra-fast i7 system but all those mighty cores are waiting on your HDD, you won't see the huge performance potential of your system. Try to invest in an SSD. If 80GB is too few space, try to put two of them in RAID0 to get one drive of 160GB. It should be quite safe to run SSDs in RAID0 since it can't fail like mechanical disks can.
If you can't go for the SSD option, two velociraptors in RAID0 would be a good alternative. But make sure you either use Windows 7 or Linux/BSD. If you use older windows versions, lots of potential will go to waste by a misalignment caused by ill partitioning. You can manually correct this misalignment. Google for it.
Of course, not everyone can afford an X25....one of the new OCZ vertex series would be more cost effective...prices start at $139 for 30GB and go up from there. Even a single 30GB for your OS and a velociraptor for your programs and swap file ( if any ) would be nice if you're on a budget. Add another large capacity drive for mass storage, and you're done. Just make sure you get the vertex series, the others suffer from stuttering issues.
The X25-M 80GB should be within his budget. But indeed your option of a cheaper Vertex paired with a Velociraptor seems nice too. However, the Vertex is not as fast as the Intel X25-M and a cheap SSD might have too few capacity to hold all the applications you need. The speed benefit ofcourse only works if you manage to seperate your active files (executable/operating system stuff) which should be on your SSD, from (large) data files which should be on your mechanical disks.
So i guess you should figure howmuch space you need and see which SSD options fall within your budget (never go for a bad SSD though - its a waste of your money). The Intel X25-M just has a huge price cut, and has a decent 80GB of storage. Its also very durable and after a firmware upgrade doesn't have any particular weakness and delivers solid performance across the board, leaving mechanical disks far behind it.
The current cost/performance leader in ssds are the ocz apex...it has an internal raid controller, so it is basically 2 drives in one. The 120gb is well under $300, and has proven it is as almost as fast overall (some benches slightly faster, some slightly slower) as the intel x-25.
Don't buy the Apex - it uses two of the JMicron-controllers that are responsible for the write latency issues you've been hearing about. Two bad controllers doesn't make one good one, if i can't convince you maybe these numbers can, its Dutch but the numbers speak for themselves: http://tweakers.net/reviews/1154/3/ocz-apex-ssd-bekeken...
agree whole-heartedly with sub-mesa...pretty much your only two choices for SSD's right now are X25's and the OCZ vertex line. Avoid all others like the plague. Head over to anandtech and read his SSD reviews and benchmarks if you don't believe us.
@sub-mesa....yeah that's the problem I'm having now. I'm pretty sure if I break up programs and OS, I'll regret it later and wish I went with the bigger SSD to start. The only advantage of doing it my way is you can always add more 30GB SSD's later and start RAIDing them. I was just trying to give him some extra capacity for his budget.