If you were browsing around in Windows Explorer deleting things you thought you didn't need, then it probably was your fault. However, under normal use Windows will eventually develop problems all on its own (sometimes referred to as 'bit rot'). Installing/uninstalling programs can leave files and registry entries behind, crashes, power surges/brownouts and gremlins can corrupt files, cleanup or system utilities can be over aggressive or misidentify a problem, making things worse, etc.

You could also try re-installing Windows over itself. This is less drastic than a format and reinstall (you shouldn't need to reinstall and reconfigure all your programs), though will not necessarily fix the problem.

With a new hard drive installed, you could install Windows to it, and not have to worry about backing up everything on your current drive first (programs may not run from the old drive, though, without being reinstalled).
Is there room in your computer case for another hard drive, or did you specify an external drive because you were thinking of using it for backups? If you have lots of hard drive space already, a DVD-RW might be a better choice.

With your current system, how long do you expect to be able to play the games you want to play? If you are really looking forward to a specific game that your computer will not be able to handle even if you lower game options, then you will probably need to look at buying a new computer.
If you can hang on for a year or so, then Windows longhorn will be out, dual core 64 bit processors will be more mature and have better application support, etc (the usual better/faster/cheaper computer trend).