I just tried using crap to run a game off SD, works perfectly.
1) Open Crap
2) Select your ISO/WBFS file
3) Select loader: Configurable forwarder (no intro)
4) Select game partition: FAT1
5) Extra parameters: double-click "device=sdhc"
6) Create channel
7) Install WAD to Wii
8) Ensure following...