Pretty much any drive 120GB or less should be fine. Before I put a Performa 5260 board in my 630, I used a 2002 vintage Western Digital 40GB 7200rpm drive from my 2003 Dell in it, and it worked perfectly.

You'll want to put 8.1 on there for him, so that you can use HFS+ volumes. A 68k cannot boot from a HFS+ volume, or use it for VM, but it can access a HFS+ volume without a problem. What I'd do if I were you would be to make a 1 or 2 GB HFS volume, to hold the system and applications, and then format the rest as HFS+.