Hi there,
Yes it is definately possible to replace the hard drive of your laptop. The first thing to do is to check the type of drive it is. Is it a PATA drive (will have a 40 pin connection)? From what I can find it online, it most likely is a PATA drive. When shopping for a new drive you want a PATA 2.5" inch laptop drive eg.
http://www.tigerdirect.ca/applications/SearchTools/item-details.asp?EdpNo=2226986&CatId=2678 ~$88 canadian
If you want to be able to have all the musiv, movies etc with then you'll need to do a swap of the drives, otherwise you could just buy a large external drive (worth having any way to do regular backups!)
To swap the drives, the easiest way I know of is to create a drive image using software such as norton ghost and then copy everything back as that will ensure you don't spend hours re-installing everything. However to do this you will need a form of storage large enough to allow you to "ghost" the drive. eg. said external drive!
If you buy a new hard drive to go in the inspiron, I would suggest also buying an USB external drive case that will accept PATA drives. This will allow you to format your new hard drive before swapping the drives.
Assuming you have formatted the new drive in advance...
Create a disk image using Norton Ghost or similar program n external media (USB drive (NOT your new laptop drive), DVD's)
Swap the hard drive, see
http://support.dell.com/support/edocs/systems/ins700m/en/SM/hdd.htm#wp1084976 for directions
With the Norton Ghost CD in the drive, boot from the norton disk and recover your old hard drive onto the new drive and away you go!
hope that helps
(edited to correct the links)