Yes, games and addons that you purchase on PSN you can download up to five times, so assuming you hadnt gotten to that limit, you could download them again on the new HDD without having to pay again.

I just upgraded mine from the 60GB to a 120GB drive I already had around the house this week, works great. I still however had plenty of space on my 60GB, so it all just depends on how much space you think you will really need.

I actually think the way it works is, when you format the drive, you have two options. You can either leave 10MB for another OS (Linux) and the rest for the Playstation, or leave 10MB for the Playstation and the rest for Linux. That being the case, assuming you had a fairly large drive, all you would be losing is the 10MB you must have for the PS. It will keep all your major settings for display and sound on the systems internal memory, as well as user accounts, but all music, videos, demos, gamesaves ect. will be specific to whatever drive you have them on.

So to answer your question, you should be able to have a drive that is almost all partitioned to linux and just swap them as you wish, without using your basic settings. I recently upgraded mine to a 120GB drive and didnt have to reset any of those settings. You will most lilkley want to back things up just to be sure however.