The 37.350 rom will allow larger HDs. You can install KS 3.1 roms as well.
More ram is usually a plus. You can add another 1 MB (for the maximum of 2 MB of Chip ram) and clock port to the trap door in the bottom. There are newer trap door options, check out AmigaKit. Without an accelerator, fast ram (upto 4 Megs) can be added to the PCMCIA slot.
I'm not aware of any legally free HD images with Workbench. Best to find the original floppies (to match your chosen KS rom, Workbench2.1, or 3.1, etc) on eBay or similar.
