If you are talking about the recovery image of the xp operating system that is hidden on the ibm thinkpads it is at the end of the disk and can be disabled in the BIOS - that way you can reclaim that wasted 6gb of space. As far as I know there shouldn't be a problem installing lilo to the MBR, but don't take my word for it, since my R40 has a more complicated dual boot setup and doesn't have lilo on the MBR, but on the beginning of my linux partition.
As for the touchpad try out
this driver. I am using it and it works just fine.
Cheers!
-geomatt