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I would say that your better off buying a ipod mini hard drive off ebay or something. But considering the Compact flash card is only $13 you could always give that a try first and see how it goes. If it works you fixed the ipod for $13 if it doesnt then you paid $13 more.
 
Yes, it will; but why stop there when Compact flash goes all the way up to 32GB? You can at least treat yourself to 8GB, as that is likely all you'll need or care to pay for for an old iPod mini.
 
I have already done a 32gb mod and it works well. Nice thing about CF cards you get a slightly better battery life.
 
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