It's not a special book blocks thing, because I bought some old Conner or Maxtor 60 MB drives at a local store and installed them in the Outbound, with no special copying. However, the guy I dealt with years ago who was trying to hack larger drives into the Laptop said that there were a limited number of hard drive parameter choices (remember those? sectors, cylinders, etc.) in the installer. This is probably why only 20 - 80 MB drives were supported.
I would guess the trick is getting the CF to act like a hard drive in the sense that it should have blocks and sectors and cylinders, logically.
The "writing EEPROM" message you get is the Installer software writing the actual EEPROM chips inside the Outbound. The EEPROM code does not go on any hard drive. The installer detects the configuration of the Outbound and then writes supporting code to the intenral EEPROM chips on the Logic board. It's like a little bit of rewritable ROM. The chips are Atmel 28C064 (IIRC) in a PLCC package. So just 64 Kbits each, 16 KB total.
However, I'm concerned about this version 2.1 Outbound installer. I'm pretty sure it never went past 1.3. Are you sure you have the Outbound **Laptop** INstaller. OUtbound later sold a line of **Notebooks** and those had a somewhat different architecture and software.