I have recently why I like to call a "Palmtop PC" on ebay, which has Windows Mobile 2003. It has 30mb of internal memory, plus it came with extra 256mb of external memory and in the second memory slot I added 1gb of external memory. The total is about 1.3gb (from what I heard more than enough to install Windows Mobile 6), however is it possible to install it using the external memory?
it is extremely unlikely that you will be able to install windows mobile 6 on it unless the manufacturer has released a WM6 update for it, also external memory does not count it is akin to a HDD on a PC not memory, it is the internal ram that is important
Yep, normally (unless you start hacking yourself) you need the supplier of the device to provide a so called ROM update for it. Most Windows Mobile 2003 are not able to update to Windows Mobile 6. Even more so ; after Windows Mobile 2003, Windows Mobile 5 was released.
It is just about possible to upgrade versions, but you will need images with the right drivers for your hardware. Windows Mobile is not the same as Pocket PC - they are designed for different input interfaces, so take care with your choices!