If you plan to use the drive as target to store encoded files, indeed you should get a fast drive or encoding times will be longer (something like having DMA disabled).
However, I suggest to keep stored data away from temporary files for at least two reasons.
First, if a drive must take data from a disk, process them, and then write again on the same disk (even if in a different partition), this will cause a higher mechanical stress on the drive, and operations will be slower.
Secondly, a highly stressed drive has a higher failure probability, so is better to keep data stored in a safer place.
My suggestion is to get a large (even if slow) drive for storage purposes only (a 5400 rpm drive can be used externally with no problems), and two small and fast drives (320GB are more than enough) to be used for encoding process. In this way is possible to reduce as much as possible mechanical stress and obtain the higher speed, because data are read from a disk, elaborated by CPU, and then written on a separate drive. One drive read only, and the other write only. This setup reduce as much as possible bottlenecks
Of course, this solution is also more costly and cumbersome, mostly if in your case there is no space available for three more disks and for a fan blowing air directly over them (I always keep a fan over HDDs to avoid melting risks )