I had the same thing happening. I did a factory reset to try to clean things up, and that make my droid somewhat faster and less home screen lag. Just be aware that after you reset, and sign in with your google account again, it will probably download all your prevoius apps and data from before. I had hope to do a factory reset to get rid of basically everything and then just choose what do download, but instead all 150 of my apps tried to download at once. You can go in and manually cancel each one you dont want if that happens. There are also settings to not sync app data automatically which should disable this.
After this I also got a replacement droid, and that is even faster than my original after the factory reformat. However I can see it slowing down some already, but that is just how it goes, the droid 1 is old now, and all these new apps and updates are a little too much for it.
In terms of using the insurance, you don't want to actually claim the insurance. What Verizon told me is that if you are paying for the max insurance plan for your droid, that it also extends the hardware warranty on the droid forever it seems.
Basically if you file a insurance claim, you have to pay a deductible which is like $100, which would be pretty dumb, because you can basically get a droid for that price on ebay which is likely similar condition to their factory refurbished phones they send you.
But if you say its a hardware issue with the phone, they just will just send you a new shell of the phone for free. (if you had that full insurance). I did that, got a free refurb droid, and now its working somewhat better. I
Needless to say I'm now going to cancel the insurance because its pretty much useless for that phone this old.