Sorry to say you're between a rock and a hard place here ;-(
The optical drive your system has uses a PATA connection to the logic board so it's painfully slow! While a second HD would work here (2.5" 7.5mm high) as additional storage it would not be very effective as the boot drive.
So your choices here are replace the HD for a SSD, or go with a SSHD hybrid drive which I think is the better move. Here's what I recommend: Seagate Destop SSHD. I would recommend sticking with the 1 TB drive as I doubt you need that much storage. Here's the IFIXIT guide to replace your drive: iMac Intel 20" EMC 2133 and 2210 Hard Drive Replacement.
If you deside to go with the SSD instead, you'll need a adapter frame to hold the 2.5" SSD in the HD's 3.5" bay. Lastly remember to trasfer the thermal sensor over as the system needs it.