Replacing your hub with a switch will create a smaller "collision domain." This means all the packets would be sorted at the switch, and then directed out only the necessary port.
For example, when sending from computer A to computer G, with a hub the data would go out ports A, B, C, D, E, F, and G. With a switch, the data would just be sent out port G. Although devices A, B, C, D, E, and F are smart enough not to fully accept the data, not only do they have to process them, but it also can consume a large amount of bandwidth. Imagine if all the computers on your network were simultaneously trying to use 100 megabits of bandwidth. As you can probably figure out, there isn't magically 700 megabits of bandwidth to go around, simply because it's multiplying everyone's data seven times (or splitting everyone's data if it's a passive hub, although these are now extremely rare).
With a small network without high-bandwidth needs, such as a small home network, or a network sharing a 56k connection it's not going to matter much at all whether a switch or a hub is used. If you're moving to a large network, or a moderately sized network with high bandwidth needs, a switch is a must.
Jazzman: Although you're probably not at a huge risk of any noticable effect of your collision LED blinking on you 10/100 hub, your logical upgrade would be to a 10/100 (full duplex) switch. As discussed earlier, this will create (a) smaller collision domain(s). A router is used for really large-scale networking, where really large-scale decisions need to be made, and they are made using layer 3 addressing (whereas a switch uses layer 2 addressing, aka MAC addressing). If you want to discuss layer 3 routing I'd be glad to, but I think it's a little past what you were asking here.
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