There are a number of different 1.8 inch drives out there (Sony also use them in their NW-HD series players). Personally, I have know knowledge on the iPod upgrade possibilities, but the drive may be locked (from the size point of view) to the firmware. Another thing to watch out for is that the thickness of the drive casing can vary, so even if you can get a larger drive you also need to check that if fits the space available.
Les.