In reference to internal 3.5" hard drives in a 1200, this can be done with relative ease. I gave up on fitting a 2.5" drive in my rebuilt 1200 desktop model because I couldn't find a 44pin cable anywhere, and didn't want to pay to ship one from the UK.
You'll need a 44pin to 40pin IDE cable (a 2.5" to 3.5" kit should work, too), and the hard drive must be a slim-type (About the same thickness as a 3.5" floppy drive, less if possible). Get rid of the 2.5" drive cradle, and the drive will rest nicely underneath the keyboard ribbon. Don't forget to add some insulation between the drive and the RF shielding!
Also, for external CD-ROMs, you may need an updated device driver and a buffered IDE interface. I use the IDEFix-97 package, but this isn't available anymore. Someone else can probably fill you in on what options are currently available.
One last option is a CD drive in the PCMCIA port. You can avoid all that IDE fussiness, but these are hard to come by, and you won't be able to use a network card in there. Since it seems like you're going the modem route, that might not be an issue.
Have fun, and welcome. :-)
