Yes, you can use the Hosa converter in order to go optical into your JB3. As far as modifications to make the rig smaller, I cannot think of any really. The Midiman Flying Calf A/D is very small, and weighs practically nothing. Many poeple carry around the Hosa converter with their rig, and it doesn't seem to cause too much of a problem. If you are looking to stay in a low budget, I think this may be your best bet.
By the way, do not pay more than $125 for one of these. The person that has the one starting at $160 will never sell it at that price. These regularly go used for $100 to $125. It is 9vdc, so you can get a Radio Shack RC car battery to power it.
Good luck, welcome aboard, +T.
-Jason