I use SFS which works very well. I use it on all my partitions. SFS is free while PFS3 is not.
I read somewhere that they perform about equally. Maybe someone with more experience with PFS and SFS can tell you more because I only tried SFS.
You can use Blizkick with SpeedyIDE to speed up the IDE a bit I guess.
Also you don't really need a CD-ROM to install OS3.9. You could also copy the cd contents to you harddisk and assign AmigaOS3.9: to the folder you copied the files to. Only problem is you need to copy the files to you harddisk using a PC or other Amiga... Could be difficult since you have a 2.5" HD and those cables don't fit in standard 3.5" IDE systems like the PC...