Should I replace failed hard drive in imac 4,1 or run from external or mac mini?

My hard drive failed in my iMac 4,1 (early 2006 intel). I am running from an external drive, but slow. Should I replace the hard drive ($300 at Apple), purchase a better external to run from or a mac mini? I'm trying to determine if it makes sense to invest further in this iMac since its 5 yrs old already. Can any one offer some insight/opinion?

Hi moreenie
Your profile does not indicate your geographic location, but there are Authorize Apple Service Providers that can and will do the work for considerably less than your local Apple Store.
http://www.apple.com/buy/locator/service/
Call around, at less than $200 to replace the Hard Drive, it makes a little more sense to fix and use it for another year or two...
I replace the Hard Drive in my Early 2006 a couple of years ago not because it died, but because it became to small.
Sorry I can't honestly help you decide, because I'm torn and can't decide for myself. Not liking the Glossy iMac's, I've also been toying with the idea of either a Mac-Mini or used Mac Pro? My biggest problem with the Mac-Mini is, that by the time you do a few upgrades it cost as much as a base iMac.  
Dennis

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