You may want to put the old drive in a drawer for safekeeping. When you sell the computer, you can sell it with the smaller drive, and move the larger drive to your new computer.
If you have an empty drive bay, you can mount the drive internally with a twenty dollar bracket kit. Your local Apple dealer can probably get the bracket you need. This is ideal if you have an empty CD-ROM bay.
Finally, you can simply sell the leftover drive, but you probably knew that already.
If there is no sound from the hard drive, it's just not spinning up, bring the machine in to an Apple Authorized Service Center or call your clone manufacturer for service. Good thing you had a backup copy!
Your other option is a hard drive recovery service. This is very expensive, and still might not be able to reconstruct corrupted data.
An external drive has many advantages. You can easily move your data from the old drive to the new drive, and there's no installation involved. You'll also have a second drive, which is handy for transportation, backing up, reformatting, etc.
If you chose to buy an external drive that's larger than your internal drive, you can move the larger drive inside your computer, and move the smaller drive to the external case. This does require some mucking around inside your computer. In particular, you'll probably need to change the SCSI ID and the termination. If you're not comfortable making these modifications, have a friend or a technician do them for you.
Much of the information contained herein has been extracted from Elliotte M. Harold's incredible FAQ lists. We thank and commend him for his invaluable service to the Macintosh world.