Thanks For your question Ken. To sum up your question it looks like you are running out of room on your internal SSD and want to move from Windows 7 to Windows 10? I would recommend the following
1. Lets get a new internal SSD for the computer. For your case a 512 GB or 1TB Can be had for around $100
2. You can plug this in replacing the old 2TB failed drive. It should be just a few screws and 2 connectors to swap it.
3. Once it is inside you can clone your old disk to the new one using clonezilla or macrium free. By cloning you keep all your settings and applications installed.
4. After cloning remove the old SSD so it boot into the new one to verify it was successful. Once booted you can upgrade to Windows 10 on the new disk. If it fails or you don’t like it, you can always re-clone from the old SSD to the new one.
5. After you are up on the new drive I would verify your backup is backing up everything on both the internal disk and external disk.
If you just want your specific questions answered
1. Possible for some, it will be slower
2. Yes
3. It will be slower
4. No
5&6 Cloning disks