I noticed the exterior on my AC units has small black circles and I assume it is mold. A few days ago the drain was plugged and the condensation all backed up inside the unit. I had the drain fixed but now the insulation has mold and pretty much falling apart. I want to replace them, what's the best way to do it.
I've done similar repairs to AC units. The yellow insulation can easily be replaced with fiberglass insulation from your home store. It can be cut to fit and just set in place.
I would not be replacing the insulation inside the plenum as you would weaken the structure. I'd spray some white vinegar in it and let it dry. Vinegar is great for killing mold, surface and below the surface. Then lightly vacuum it out but don't break up the insulation. Make cleaning the drain a yearly task and don't wait for it to leak first. Many AC units have a safety float in the drain piping that will shut the unit down if water fills the pipe.