Hi mikeymike.
The instability could be the PSU/accelerator. The 040 is quite power hungry and runs hot, so a vented trap door cover and a beefier PSU MIGHT be all you need.
There are plenty of upgrades available. You're right about the CF/IDE (or even SD to IDE) adapter, and this might also take less power than an old HDD. Check out Retropassion and Amigakit for some ideas of other expansions.
OS 3.2.1 has a load of enhancements, including file system fixes for large drives.