Should I upgrade the internal hdd on my 2008 8.1 iMac or use an external drive?

I have an external hdd right now it is a 500gb go seagate goflex with a number of iTunes folders that I put on from my windows pc. I just received this 2008 2.4ghz core 2 duo 8.1 iMac and tried to import the files. The internal hdd is only 250gb so they would not fit, when I tried to get iTunes to run from the external drive it would but I would have to manually open each artist then album then song I wanted in the Finder for it to play. The songs do not show up automatically in iTunes, even though I think I followed all of the instructions for external hdd support. I was going to buy a new iMac and have the genius set it up, but now I think I am going to upgrade the RAM myself and am deciding wether or not I should also replace the internal hdd to 2TB or just get an external hdd so when I get a new iMac, maybe next year, I could still use it. However, I don't want to get another, larger external hdd if I'm going to have a hard time transferring all of my media to iTunes. Can I pay to have an apple genius do this at the store? I just upgraded the operating system to Snow Leopard and am waiting to upgrade RAM before moving to Mountain Lion. I just want my iTunes to sync up, at this point I will do just about anything, short of buying a new Mac. Thanks for any help.

You can keep your iTunes collection on an external drive.  You can also keep just bulky items that you may not want to see often such as movies and just keep smaller items on the internal drive.  This split option is more tricky but there are several ways to do it.
If all you have is a modest music collection, you can manage with an internal drive.  Most modern media collections with huge movies files fast outpace even larger internal hard drives and you will have to resort to an external drive.  Your computer dating from 2008 is (according to Apple's coproration standards) on its way to becoming a museum piece (hey, I still use a 10 year old computer, but Apple gave up hope for me years ago).  I would not upgrade the internal drive.   That will cost you a lot  and be tricky to take with you to your next computer. An external drive you can just plug into a new computer.
Some of the issues you are encountering are because you do not yet know how to properly manage and transfer iTunes files.  We can help you, or you can pay somebody a lot of money to do this for you on a regular basis.
Your GoFlex drive was used with Windows. Macs and Windows use different drive formats.  If you are now using Mac-only then you will need to reformat the drive (you will need to store all those files elsewhere while you are doing this).
Do not buy just one external drive.  When that drive fails (oh, and believe me, it will) your whole collection will be lost.  Some of it you may be able to download again from Apple, but Apple does not "store" your iTunes collection, it is up to you to ensure its safety.

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