Japanese site Game Watch tested to upgrade the Sony PS3 hard-drive with a larger and faster HDD and confirmed that this works like a charm.

Sony apparently describes the HDD upgrade procedure even in the handbook. Sony placed in the 20GB PS3 a Seagate LD25.1 and in the 60GB Playstation 3 a Seagate Momentus 5400.2. The Game Watch team replaced the standard Sony PS3 HDD with the Seagate 100GB Momentus 7200.1.
After restarted the PS3 the console automatically suggests formatting the new disc.
In performance tests the faster HDD did not make that much of an impact. Game Watch says the only advantage is the bigger storage capacity.
More photos and details on the Game Watch site (Japanese). More Sony PS3 News.