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I'm not an "iPod hater" -- I own a 4G and 5.5G, in fact -- but in my experience, the iHP140 is without question the best and most versatile PMP/R ever made.
I own two iHP-140s and use them sparingly. The optical I/O is a rarity; I will never part with either player until it becomes unusable.
The most usable iPods are the 4G Photo 60GB and the 5.5G 80GB. Both can be modded by Vinnie Rossi of Rd Wine Audio to sound far superior to the normal iPod (though the 5.5 mod is more expensive and requires an Audio Line-Out Dock). I recommend the larger 4G for modding and the more versatile 5.5 for everyday Rockbox use. The 5.5 is also the only iPod that records 44.1 CD-quality audio without extensive surgery. Since you can't buy them refurbished/refreshed on the Apple site any more, I might try individual Apple stores.
The distortion of which you complain will be alleviated by the Rockbox EQ and the iMod, though you'll need a limiter cable from Radio Shack at the very least -- I haven't listened without a headphone amp, but Vinnie reports the limiter adapter works.
As for your real question -- whether a larger HD will fit -- I'd search this site thoroughly, since several people have swapped out their HDs. I'd then email one of those people and ask your question, since they'd know more about it than many of us, who have merely thought about the idea.
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