If no one gets an answer i will check my manual when i get back to school in a few days, but i believe you can get up to 128mb. You have to make sure it is the same format and all of that good stuff. Like i said i am not 100% on this though.
AFAIK, you have to record them from a disk while both the memory stick and the CD are in the unit. Once again, i'm not completely sure as i basically read over the manual once and then just went for it. Haven't tried anything crazy like the memory stick, just regular ass cd's
you can use Open MG to convert to atrac3. You can use any size media as long as it is what it is able to read. For example: Memery stick only for memory stick and memory stick pro only for memory stick pro.