Went through that whole routine when I got my first putr, just a bushel basket full of parts. 256M seagate compressed to 350M, Win95A FAT16.(not FAT32 capable). put in a 4G Western Digital, and loaded Win95B (B, C,and later is FAT32 capable). Don't compress the damn thing- nothing but trouble. The machine still runs fine 5yrs after the above up-grades. I use it to run a construction estimator and a blueprint machine.
Also, you wont have CD-ROM until you get Win95 loaded. So I use a Win98 start disk (which has CD support) to load the 95 OS.
I would get the larger HD and load 98se not compressed. Clean and easy!
( I also have another machine with this set-up). You'll learn alot by the time you get done. DRB