yeah, that's the problem with these sub-100-dollar bargains.
one of the advantages a well-built JailBait Linux distribution will give you - it runs without the need for the MicroDrive which costs more than the IA-1 itself. the distribution rasmus has put together is actually quite good, and continues getting better. it includes the absolutely most recent LINUX kernel (good for USB) and latest USB network drivers (works with more USB adapters.) if you haven't paid $30 for the NIC yet, you can actually get a $9.99 Xircom NIC or a $19.99 3Com NIC from TigerDirect that will work with Linux and Windoze.
personally haven't used Konqueror but don't have any problems using Linux in general. the best option may be what bball has done - using a Linux server box, run the IA-1 as a remote X-terminal where all scratch, bookmark files, etc. reside on a network share mounted from the server. if you already have a Linux server, this is definitely less expensive and more reliable than the microdrive, although it requires an investment in configuration and troubleshooting.
you've already discovered the largest disadvantage to using Win9x on these appliances: although it's convenient, it really costs you in terms of needing hard disk space for swapping and having only 32 megabytes of RAM for the operating system. that's why they used WinCE or QNX or another small-footprint embedded o/s when marketing millions of these units - it's multi-million dollars cheaper in materials and manufacturing costs.
i don't have a microdrive; i configured and ran Win98SE from a 256 meg CF card just long enough to prove it worked, and configure the drivers. if i decide to spend the money for a microdrive in the near future, i don't think reliability should be much of a problem. these devices were originally used in embedded systems for industrial automation and production monitoring, often with WinNT embedded, and have been around for a couple of years, now. ranman has been using his ia-1 with a microdrive for months now, and hasn't reported any problems. maybe if we research the suggested operating temperature range and MTBF on these devices, we might be pleasantly surprised.
finally, if i planned to setup an IA-1 for the wife to use, i honestly believe i'd search and pay for the least expensive 1 gig microdrive, and create a 256 meg swap file on it. the long-term WAF (wife acceptance factor) is well worth the short-term $$$ spent.
just don't let her find out the price of the microdrive, no matter how cheap you find it