Yes, that's the same hard drive I have in my system and Western Digital is very reliable. WD is also very good with warrantying their drives.
With partitioning the drive, you can use the laptop, but you will need something such as an external SATA drive case or SATA drive dock to connect the drive.
As to the partitions, it doesn't really matter if they are formatted or not. But the main thing is the recovery partition will be converted automatically to EXT2 and changed to an EISA partition. The primary partition will be formatted during setup.
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The only reason I've given you instructions to recreate the recovery partition is because of what you have told me of your technical skills and from the fact that it seems you're basically still running the factory default setup.
Preferably though, don't bother with the recovery partition and do a CLEAN installation of Windows 7. That is to say, do not restore your previous version of windows to the system.
OEM software generally requires you to make a hardware purchase at the same time (loose interpretation). Generally in the case of an operating system such as windows, OEM is supposed to be sold with a new PC. But many places such as NewEgg will sell OEM by itself.
Upgrade requires that you have a previous installation present to qualify before it will proceed with the installation.
Full Retail (or OEM) does not require a previous installation to proceed.
Just make sure the copy you get is legit and not a cracked copy which can
happen if you get it off eBay, Craigslist or some other places.
The recovery partition is what OEM's (manufacturers) use to hold a complete copy of the system the way it was when you first purchased it along with any software and drivers which were pre-installed. This partition will also usually hold some system tools among other stuff and the recovery files in the EISA partition are usually updated periodically.
Personally, I don't bother with the EISA partition unless someone is keeping things much as it was when they purchased it.
As for a Power Supply, if they don't have the one you want, just look for one with higher wattage then such as an 800 or higher and make sure it has the correct connectors for your video card and you motherboard. I like the modular power supplies.
Hopefully this reply wasn't too much to digest.
Good Luck