No, standard firmware 1.03.xx - no need for CF. It has been reported that the previous 1TB limit has been raised to 2TB (I'm using "TB" rather than "TiB" because I'm not sure how accurate the figure is).
We've been around this loop before. AV drives are optimised for medium sustained data rate and sequential access with a high duty cycle; general purpose computer drives are optimised for high burst transfer rates and rapid random access. There is no need to have a drive in AV service spinning at 7200rpm. That is not to say a general purpose drive would not work, but it is likely to generate more heat (and maybe wear out more quickly).
Various people have used Western Digital drives and been happy with them but the drive you have linked to is optimised for surveillance use rather than PVR use so may not be ideal.
I am not sure that anything will "go wrong" but you are likely to get more stutter on playback as the drive ages because normal drives place more emphasis on data integrity and will retry reading a marginal sector more times that an AV optimised drive.
I think you mean 2TB.