I finally upgraded my PS3's HDD last night! I bought a Western Digital Scorpio Blue 500GB 2.5 inch SATA drive (5400RPM not 7400RPM) and a 2TB Western Digital My Book external HDD.
The first step to upgrading your PS3 is to convert the file system on the external HDD from NTFS to Fat32 http://www.ridgecrop.demon.co.uk/ind...at32format.htm this process takes all of 60 seconds and then when you can connect it to your PS3 it will recognized it.
Once connected go to System Settings on the XMB then to the Back Up Utility, the back up took aprox 3 hours for a full 80gb using a USB 3.0 cable.
Once done you can remove the original PS3 HDD and swap in the new 2.5 inch SATA HDD (be sure it's 5400 RPM not faster).
Once you have installed the new HDD you can restore all the data from the external! That took a little over 2 hours and when it was done everything was there, pictures, movies, music, game saves/data/trophies etc.
Once I was done I had almost 400 GB free space so I finally DL'd my 2 free games from last years Welcome Back program inFamous and LBP as well as the Sly collection, RDR Undead Nightmare. I also recently picked up SSX, ME3 and Hyper Dimension Neptunia. I also have borrowed Bioshock, CoD BO, KZ2, and R2 from friends so I have my hands full!