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radarbob
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I've been using my 300MHz iBook for 6 years, so far...

1. You really should replace the hard drive. I did mine by myself w/ instructions I got off the internet. It seems scary, but honestly the hardest part is keeping track of the screws.

2. I thought about an external drive too, but i just know in my gut that USB 1.1 is way too slow to be practical. And good luck in finding a drive that will work on 1.1!

3. Yes, you can install apps on other volumes (to use Macspeak). During the install process you are given the opportunity to pick which disk volume to install to.

4. Where are these files you want to transfer? I've done lots of file transfer mac to mac using a "crossover" ethernet cable. "Crossover" meaning the connections on one end are reversed so you can connect two computers directly. I understand modern Macs can use either "crossover" or not, but the original iBook, at least, can't. Setting up the computers for sharing (hint: "file sharing". look it up) is easy but not necessarily intuitive. It will be a good lesson for you. Finally, if both computers have airport cards, you can do it directly wirelessly too.

5. Let me say it again, USB is great, but USB 1.1 is slow. Too slow for iPod transfer or external HD's IMHO.

6. A thumb drive is an excellent way to transfer files. In fact I did transfer iTunes files this way, but not my whole library. WARNING.. get the skinnest thumb drive you can. The clamshell case will prevent you from inserting a thumb drive that is too wide. I also use my thumb drive a lot for PC - mac file transfer.

7. Your clamshell can use a 512MB RAM module (I recently took mine out to put into my 900MHz iBook). Go to www.4allmemory.com You select your computer model and they tell you what memory they have that works. That's how I got mine.

8. Replace the hard drive. You really do not want to compromise the portability by dragging around an external drive. Also the OS uses GIGAbytes of drive space for virtual memory. With your current situation, performance is hampered.

9. W/ the setup I had - 40GB drive, 512MB RAM installed - performace was good enough. Panther was, interestingly, a noticable performance improvement over Jaguar. Expose worked much better than I thought it would. The worst app was the OS email client - it was horrible under Jaguar and I was using Eudora in classic mode instead. Panther improved it significantly. MS office worked fine, I was running the OS 9 version in classic mode.
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