well performance on a 5400 rpm compared to higher cache'd 7200 will be noticeable. Where you are using vm's I would be more concerned with the amount of ram you would have in the box.

I have a pc here with an AM2+ board that you can have cheap if you want it. it would be perfect for what you are doing without the lag from a much lower end machine.

I'm thinking smaller platter size will improve performance.

Density on drives does matter, but from my understanding bigger drives will still be faster than smaller ones because most of the platter is further away from the point of rotation making it's velocity faster at those points.

Think of two cars driving down a road at say 3000rpm but one has 15" wheels where as the other has 20" wheels. Each minute the tires on each car are rotated 3000 times but the tread on the 20" wheel (if cut apart and laid out in a line) will be longer than that of the 15" wheel. I'm not going to bother with the math to get the circumference because I'm just trying to illustrate a quick point here but it's that comparing RPM's from desktop drives to laptop drives is a bit like comparing apples to oranges as their size is different.

I would suggest checking out storagereview.com to get a better idea on how differing drives compare in different situations but I have a strong feeling you'll want a desktop drive as it will be cheaper and faster on average.