Boot from a external USB drive on this machine is from pain till impossible everything. To replace the internal HD see
https://de.ifixit.com/Guide/MacBook+...eplacement/514 is not much work.
To the SMC upgrade, I would not believe all what Apple tell you. At the end, it is the last available version for this machine and, in the future there will not come newer versions.
The general question is, do you really need Mac OS X 10.5 Leopard ? It is very old and there are no more updates from Apple ? If you still run PPC apps, try to replace them. You can create a nice Mac OS X like desktop like
http://vermaden.deviantart.com/art/b...theme-67963470 (Fluxbox) or
http://guistyles.com/2005/06/13/fvwm-milk-theme/ (fvwm milk). The only thing on this machine is, that mine runs between 50 and 60 degrees even I use APM's autoscale.
The only thing I could tell you is, 5.9 runs on my machine (with 6 GB RAM). Before replacing the drive, backup your Mac OS X data and try to run OpenBSD as only operating system.
Only a crazy idea, could it be, that the boot freezes and the reason is the same as if your / root filesystem is to big that the bootloader can't find the kernel ? Something like partitions on the wrong place.