MacBook – ’07 MacBook Pro — OS X will not accept disk 2 during a fresh reinstallation

Restart the computer, then press and hold the ⌥ key just after you hear the startup chime. Even if the install disc is ejected, and you are only shown the hard drive as your unique boot option, at this moment you can again insert the disc, and wait for the computer to read it. If everything goes fine, you will now see the option to boot from the CD.

Well, if it's a MacBookPro3,1 model, then you can upgrade the RAM to it's maximum of 6 Gb. Ram is extremely cheap these days, would be less than a 100$ I imagine.

As for hard drives, you could install a 7200 RPM drive (like Western Digital Black series), again cheap, ~100$ for 750 Gb. If you have a bigger budget and no need for such space I strongly suggest installing an SSD drive, at least a 128Gb. This is by far the best upgrade option you can do on your computer. You won't believe the difference in speed! Check out OWC's Mercury extreme 3G's SSDs from Macsales. They are by far the best out there.

And I would install at least OS Snow Leopard, it's pretty solid and fast. Can't say for Lion yet, haven't tested it.

As for software there isn't much else you can do. Reinstalling the entire OS from scratch will bring you back to it's original speed but machines tend to slow down over time, this is normal. In my honest opinion, the main problem these days is the hard drives that can't keep up with the rest of the computer. This is why an SSD is a good solution to remedy this problem. And if you buy a bigger version or better yet a SATA3 version of the SSD you could transfer it to any new laptop you might buy in the next 2-3 years, it will be even faster.