You can do a minimal install that would fit in the flash, but to do a full install you would have to install part of it to SD or CF.
I've been toying with the idea of installing multiple OSen to different SD cards (leaving the CF slot available for networking) and using the Sharp ROM as a bootloader. That's how OpenBSD works, according to their documentation.
Grub for the Z? Something like that. It would be fun to be able to switch operating systems between OZ, pdaXrom, OpenBSD, and others by swapping a card and rebooting.