1) I would guess the MDD supports LBA IDE drives, correct?
If you can find a PATA drive, the MDD can take it.
2) IDE drives top out at 500GB or so - why?
Ooooolllllddddd. From what I recall SATA was starting to be fairly popular in 2003/04. Given that is it 2010 now.. yea. Old.
3) Would it be a good idea to get a SATA card and run SATA drives? What's the advantage?
You can boot off some SATA cards! Biggest advantage would be capacity, being able to use new drives and easily replace them later with new drives(new also means they should be quiet compared to older worn drives), If you have the right card the speed should be fairly decent.