I'm no expert on the mechanics of a hard drive, but IMO there can be other reasons as to why an older "spinner" is running slowly.
If the machine is several years old, then a new hard drive is probably a good idea. SSD's are really not all that expensive when you consider how much a difference they can make, even on hardware that is reasonably old. If it has a SATA interface, an SSD can provide quite a boost in performance over a spinner. I think the average customer feels they "need" 500GB, or 1TB+ of drive space just because that's what they had before. How many of them have 1/4 or more of the drive filled? How many of them even know / care? I think it would be quite rare to find a customer that HAD to have 500GB or 1TB of space in their laptop and really needed it. A nice 240 - 275GB SSD should be plenty for the majority of all users, and not be all that much more expensive than a new spinner. Especially when like I said, it can breath new life into a laptop that's 5-7 years old and make it useful for years to come.
It may be a bit of a personal preference, but for me it's like going back to dial up after experiencing cable internet. I was getting into the online scene just at the tail end of the dial up years.... I remember file downloads rolling along at 5KBps and it literally taking every website 15-25 seconds to display and those were pages with not a lot of graphics, and weren't very large. When I first got cable internet (through Adelphia, which was then bought out by comcast) it was like "oh my god, the internet is finally usable". I spent like a week straight where I would be online for 10+ hours a day. I remember walking like I was crippled for a while.. because I sat so much. I said I'd quit using the internet before I'd ever go back to dialup. Same with SSD's.... I'd never use a spinner as a main drive again unless I had absolutely no other choice.
I would agree that it's a terrible idea to buy a "refub" hard drive.
As far as anything with the XP logo being too old for 7.... not 100% true. The hardware itself can actually be quite capable, as win 7 was a very refined OS and very efficient with it's usage of resourced (much more so than Vista). I think the real reason why you'd never want to do that is that it would be quite expensive to pay for the proper upgrade license and the hardware is at an age where if it isn't already failing it probably won't last much longer.