DSL does have a toram option.

The drive doesn't have to be FAT, it just can't be ntfs because of the lack of stable drivers.

When you have the Fat drive connected, first click on the icon. Then right-click the icon -> actions -> change read/write
Otherwise you won't be able to write the files to the fat drive.

As for the cds, there is a standard format, abbre. to ISO that almost all cds are burnt in (with exception to udf for packet writing)
So yes you can read the cds.

Good luck.