The Windows tools wouldn't work, because Jailbait uses compressed Ramdisks (no known Windows driver for those...)
You'd need to edit it under Linux, using the Loopback Device support (insmod loop.o and sbin/losetup) with the appropriate filesystem support modules (cramfs, I believe..)
Otherwise, and probably a lot easier, you might just want to run jailbait on the Sandisk, and simply FTP your updated pegasus.o file to the correct place. You might need to mount root in read-write mode.. I often just pass that on the LILO command line, because I'm too lazy to remember "mount / rw -o remount" (or whatever the correct syntax it is.. *grumble*).
For Jailbait, the LILO command would be something like:
hdb root=/dev/hdb1 rw
Once you get the file in the correct place, run sync, and reboot. It should be all you need.