If your hard drives are overfull you will get poor performance in general, but usually running things locally should be way better than externally.
The quality of the final product would be exactly the same. You could probably re-link to the mpg version files if it was an issue, so you wouldn't have to restart the project, but I think a test would be a good idea before you go down that path. Does it make any difference to playback, do you know?
