Optimal HD availability

Presently my 5,1 iMac is stating my HD: Capacity at 148.73 GB and remaining availability is 41.41 GB.
I'm looking to upgrade my OS from Tiger to Snow Leopard at the very least and run Adobe CS5 (presently running 3).
I'm looking to have enough available space on my internal hardrive for my mac to run optimally.
Do I need an external hard drive of similar capacity (200/250 gb) or should I go for more (500gb) to be able to make a bootable back up of my programs and new OS (Snow Leopard)?
My Firewire bus states up to 400mb/sec. Is this enough? Which hard drive is best suited and is Super Duper or Carbon Copy the way to go. Can I download these?
My ram is presently 1gb (512mb x 2) and will max out with 3gb (2gb + 1gb) before I upgrade the OS.

You should always have an external drive that is roughly equivalent to twice that of your internal HDD. So yes, go for the 500 GB , 1 TB would be better and it wont be all that more expensive.

My Firewire bus states up to 400mb/sec. Is this enough?

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Enough for what? It's data transfer rate. Higher the number, the faster the transfer but it'll get there in the end no matter what the speed.

Which hard drive is best suited and is Super Duper or Carbon Copy the way to go.

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Any reputable HD will be fine. Superduper you pay for, Carbon Copy you're invited to make a donation. Both of them do pretty much the same job.

Can I download these?

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Yes:
Carbon Copy Cloner - Download
SuperDuper!

Would Time Capsule work with my imac 5,1 OS 10.4.11?

If I buy that then I suppose I could optimise it's synergy with Snow Leopard once I'm up and loaded.

Time Capsule is pretty expensive if all you need is an external drive and have no use for the router functionality.

True. My Netgear is perfectly fine. Just want to be able to back-up before I go ahead and upgrade the OS.