Yes, the limit for that KS2 rom is 40MB HD. Some have reported that with KS 37.300 will work with larger HDs if you set the first partition to 40MB, and then make the others 2GB or less. Might be worth trying.

BTW, a CF card basically has the same connections as an IDE HD, and the IDE to CF adapters are really just a pass through. So nothing in addition needed.