With Workbench 3.0 or 3.1 you can only use the first 4.5Gb of a large harddisk, it will let you try to use more (but end up in a mess if you do). Going to OS3.5/3.9 or using a different file system is a bit of overkill when you're just starting out ;-)
In general older drives won't get as hot as new ones, and it's easy to pick up a 2nd hand 2.5" harddisk cheap on ebay if you don't want to bodge it into place.
Over the years Amiga 1200s have been hacked up and bodged in every way imaginable, it's surprising what they'll do with a little ingenuity!
