With the stuttering I was referring to external hdds.
And it'd seem you're right, you can get an iso of xi but you still need a hdd for playonline. I myself have a later slim model, so no hdd for me.
If you have your's softmodded though, take a look here...
http://ps2drives.x-pec.com/?p=list
You'll be able to find a compatible hdd and format it thru the ps2. Done. hope yours is there, if not... test it. Nothing to lose but the time it takes.
Edit: Forget to mention winhiip, if you don't have it, it might come in handy.