You aren't crazy. I used to build an embedded system that used a PC104 CPU card as a daughter card processor. We used an adpater board to connect a pcmcia memory drive to the IDE bus. So what you propose is more than just feasible, it's been done. I have one of the adapter cards here in my office that converts cables.
The main issue is whether or not you can mount the harddrive into the FR2. If there is room in the case and if you can retrofit a shock absorbing carier, you are in buisness. Screw the 5 gig drive. There is not one thing preventing you from using a 40g laptop drive.
the only other issue is the power consumption and internal batteries of the FR2. those AAs aren't going to last long driving a bigger drive.
BTW, I spoke to SD last week. 722 should ship in november. They are building the first 722s for demo machines in the current run of customer 744s, then the customer units. So I'm going to be patient until end of november. I don't think that the guy understood what I was saying, that I would buy an FR2 if the 722 doens't ship in time for ashville.