I'm trying to make a "semi-nano  PC" myself...
 <3.5"?  That's a "standard"
off-the-shelf IDE disk, isn't it?  2.5" is
<a standard off-the-shelf laptop IDE drive.  1.8" drives are also
I'd rather 2.5 or smaller but a really cheap 3.5 is ok. 
2.5" drives
arn't hard to find.  A while back, Data Probe
(
http://www.dataprobeintl.com ; sales(a)dataprobeintl.com) had even 500MB
notebook drives for around $50 (used), they were 2.5".   They weren't listed
on their website, you'd have to ask them...
And, I'd recommend the Kittyhawks.  That, or there's soupossed to be a
re-writable ROM-like 1" square coming out, right now, they've got 20 and 40
MB versions,with 80MB coming soon...
 The is at most a one up for myself(non commercial
design). 
Same here.
    Ciao,
Tim D. Hotze