paul1981: I already have a 2.5" IDE hard drive lying around from an IBM T61 laptop that broke, so thats good news. It may be a bit too big though, its probably somewhere around 30-40GB and I hear there are issues with drives >4GB. Any advice regarding that?
This may not necessarily be a problem, because although the drive is 30-40GB in size, it doesn't mean that you have to use all the space on it. As long as the partitions is max 2GB in size, and you only use the first 4GB of the harddisk, there shouldn't be any issues.
But you can also use the rest of the disk space by installing a filesystem that can handle large partitions on the harddisk (SFS or PFS). In addition you must also use something that patches the system on startup, this can either be IDEfix or a newer scsi.device. Another thing that may be required is NSDPatch so that the system can "see" all partitions after the 4GB border.
That being said, like some others here I will also recommend a CF card + CF-IDE adapter solution.