Yeah, that would work great on a handheld device with no optical drive, but you might want to upgrade that 30GB 1.8 inch hard drive to something roomier. Once you start amassing those ISO's, especially D9 DVD's, they will literally eat a small hard drive.
I am guessing hard drives in the 1.8 inch form factor currently go to 80GB, but don't quote me on that though. In any event, that should give you enough space to store your most frequently accessed discs, while still leaving headroom to swap images back and forth.
I've been using Paragon CD-ROM Emulator and Alcohol 120% for a long time now and they work great. Recently I have also found a third solution called GameDrive that promises compatibility with all future games as well.