7200RPM is absolutely necessary to be rid of that bottleneck, first and foremost. A 5400RPM imposes a practical limit to the minimum size of the buffer, and from experience this can be as big as 256 (meaning anything lower you get xruns regardless of how good your audio interface is). WD has a 320GB 7200 mobile disk going for around 100 bucks.
Secondly, the CPU. This is important because the lower the latency, the harder the CPU works. As such, if the headroom is not big enough, you find that even a little bit more CPU usage deals a heavy blow. I'd recommend at least a 1.8GHz Core 2 Duo, which is pretty standard these days.
Overheating is an inherent hardware problem that comes with age. I bet your battery capacity has decreased as well. And a 7200RPM disk will output more heat, so get a flatbed cooler if the laptop's underside design isn't good enough to compensate.
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