Yep, that's the beauty of the MSN companion machines - easy to "upgrade" If you don't muck up the case too much taking it apart, no one can tell you've been in there (assuming you re-enable silent boot before you pack it up for warranty service).
If you want to write over the onboard flash, you will (obviously) need a card bigger than 16Mb to hold a tiny OS, flasher utility, and the image file. If you just want to run from the CF - you can put whatever will hold your OS and files in there.
You can, if you are so disposed, install a hard disk and do all kinds of other mods, but all you absolutely require is a CF card and a screwdriver.