Hi I think you might be right on the flash ram and you might be at the mercy of a good deal on ebay like the one in this posting
http://www.emusonacid.co.uk/forum/viewtopic.php?t=189&highlight=upgrade+flash+memory
Personally I'd work with your emu as is whilst periodically checking for good deals on an Ultra series emu to trade up for if you find your's limiting. Make yourself aware of all the emu options as well because if you think you'll want them then buying a loaded sampler could be cheaper than trying to get the options seperately.
Classics dont natively support ide so yes you need to get a SCSI drive and yes one off ebay may well work. I believe emu had a compatible list but as it's old it won't be complete. There are lots of posts here on internal scsi drives but generally I think you'll want a low power drain drive using the 50 pin interface and preferably quiet. Other users have had ultra scsi drives, DVD ram drives, MO drives, zips as well as the CF stuff I keep rambling on about, work with their emus so you have lots of options. Be cautious and read up on the details if you fit an internal drive yourself - the emu power connection is nonstandard (reversed).