Ghost will make a duplicate image to a larger disc, no problem. It will erase all the data on that disc that it is writing to, in sense formatting it. If you can hook up the 40 Gb drive as a slave drive, you can make sure that you can read anything that is on it prior to making it your new primary drive. (if there is any data on it to be read)
This way you know if the drive is physically ok, and should take a ghost image, or a fresh OS reload.
You can also get a utility disc boot cd for that drive, or a boot disc like UBCD. With this, you can run the manufacturer specific drive analisys utility, format the drive, retrieve intact data, etc...