Well, if you need a CDROM as well, then the best option would be a 3,5" HDD, but for desktop Amiga 1200s with only a need for a HD, a 2,5" would be the best choice.
For connecting HDD and CD get a IDEfix, or a 44->40 pin IDE cable and attach both devices to the cable. The power could be taken from the diskdrive as you mention. Basicly, just make a split cable out of the existing floppy power connector going from motherboard to floppy drive. In one end you should have the usual 4 pin connector for floppy drives, and at the other end both a 4 pin floppy and a 4 pin HDD connector.
As for prices, I got a 30 GB 2,5" HDD for 20 UKP...Running nicely in my A1200D with Blizzard 1230 :-)
