I do not think you'll ever find upgrade for Webpal's own firmware, as the comany that made it is dead and they did not open it's source before dying.
As for instructions, you can send your Webpal flash chip to me, or to Bill, plus a stamped and addressed envelope, so we can send it back to you after reflashing. Other instructions you can find on Bill's excellent page http://webpal.bigbrd.com/
Nowadays you can find 2GB harddisk for about $20 and network card, compatible with current Webpal Linux software for about $5. That should be enough for your purposes. Also, you'll need additional memory, if you do not want to mess with hardware, that'll be 16MB 72pin simm.
As for graphics, like X, it will work eventually, only nobody can give you a guarantee or dates, as we're doing this in our own spare time when it fits.