Whatever HDD to plan on installing Win7, format the HDD first. Make sure you have a reliable HDD with sufficient capacity. If you are planning on installing the OS (Win7) and all your programs on this HDD, go for a 500 GB (overkill, but inexpensive these days) HDD. Keep in mind that the OEM version of Win7 can be installed only one ONE computer and cannot be un-installed and transferred to a different computer.
Install a separate 1 TB HDD for all your files, music, videos, etc.
Here are some choices of HDDs:http://www.newegg.com/Product/Product.aspx?Item=N82E16822136320
(Win7 & programs)http://www.newegg.com/Product/Product.aspx?Item=N82E16822136284
Formatting can be done using the Vista OS you currently have, but once you do that, you no longer have Vista. Since this is an older HDD, leave it alone for the moment. Do the formatting (NTFS) and the Win7 installation on a new HDD. After everything is working the way you want it, then decide about formatting and using the HDD that has Vista on it.