Stop SQL Server service(s) before defragmenting drive?
Your problem is not disk fragmentation. Your problem is RAM and application table scans:


  4GB RAM ... 68GB ... Page life expectancy 20 seconds


You need way more RAM. As in your new server should have way, way, way, way more than 12GB. Start with 64 GB, it costs basically dimes. And yes, fix your app to use indexes. 20 seconds is very clear indication of table scans that trash the buffer pool. You need to fix the app, add the required indexes and fix your queries. For your case defragmenting the drives is as much a red herring as red herrings get.

Oh, and please move the log to separate physical spindles from data. Alone.