Sounds like you're on the right track.
The CPU temp at boot up in the bios at 33 seems a bit high. Unless the ambient temp is 90*F, the temp sensor on the processor may be quite a bit off, giving you higher temp readings than what they actually are. Those sensors are known to be very inaccurate. I've had CPU's reporting 10*C differences within the processor itself!
I don't think moving the HDD will show any great improvement.
What I mean about blocking off the area under the 5.25" drive:
Think about where the 120 gets it's air from... you have to analyze both sides of the fan, not just where it's blowing the air to, but where it gets the air from. Like most things in life, the air will follow the path of least resistance. It will draw all of it's air from within the front bezel. Looking at your pictures, that air can come from only 2 places, the vents designed for that intake air on the bottom edge of the front bezel, or it will draw it from the large opening that leads back into the case below the 5.25" drive. It looks to me like the path of least resistance is from the opening below the 5.25 drive. Block that opening, and the intake air will be forced to come from outside of the case through the vents in the bottom edge of the bezel.