Yes, the hard drive will get slower over time, more because it fills from the outside edge in, so each revolution of the platter gives you less and less data as it fills up.
Putting an SSD in a FW800 enclosure actually works pretty well - I've been running my 2009 i7 with an 80GB Intel X25m (1st gen) for over a year, and it's definitely faster than the internal WD Caviar Black. It works fine for the OS and Applications, since what you lose over FW is the very high sustained transfer rate of the SSD, which is rarely used for anything other than user data (ie, copying a huge file, etc). For loading the random bits of the OS and Applications in normal use, it's much better than any platter HD, since the SSD has no latency or seek time slowing things down.
I would definitely recommend a FW800 SSD over opening an in-warranty machine to replace the internal HD with an SSD, both because of the risk of damaging something (like that tiny cable everybody tells you to be careful of), and because of the loss of internal capacity. I have my user folder on the internal 1TB drive (as well as a clone of the SSD in a separate partition, for convenience if I have to take the iMac in for service), so everything runs pretty efficiently. For normal users, the internal hard drive should be enough for data storage (I'm a photographer, so I've actually got a mess of external drives, a RAID, etc), and you get most of the benefit of the SSD without the risk of opening your iMac up. Also, since FW limits the bandwidth of the SSD, you don't have to worry about buying the absolute fastest drive out there - pretty much any recent SSD is big enough and fast enough to easily outrun the internal drive for OS duties.
Also, while Thunderbolt does show promise for future use in similar circumstances, it's not currently possible to boot a Mac via Thunderbolt. I'm sure it will eventually be possible, but a FW800 SSD works now.