wouldn't it be easier to use an embedded PC module, which would have IDE, FAT, etc all built in?

You can get an embedded PC in a SODIMM form-factor; I've mentioned it here before - search for "SODIMM"

Or, the size of a business card:
http://www.dsl-ltd.co.uk/buscard.htm

Or: http://www.bcl-online.de/home.asp?status=en_home