Snow Leopard won't install
From my experience, hard disk drive life can vary. Most promise hundreds of thousands of hours, but engineers calculate it as a "mean time between failures" -- some will last longer than others. Be glad yours failed when you could replace it, rather than the horror stories I've read about where the drive decides to die in the middle of some important project and there's no backup.
I wouldn't recommend using an external drive as your main, start up, except in an emergency. Keep the new one for backup or extra storage and replace the one in the case -- you'll also get faster data transfer rates. Yes, 350 seems a little steep for a replacement drive. I've installed drives in my Mac Pro and G4 myself or as little as US$80 (no VAT in the States) for 500GB. In the Mac Pro it's just a couple of screws and it plugs in. Some where there are video tutorials to help you do it your self.
Let me know.
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