I have had both my 500 and my 700 connected to the ac adapter as well as to the USB cable and there has been no problems at all -- I've been doing it that way with the 500 for 18 months with no problems, and with the 700 for the past week.
As for the internal memory thing -- on the 500 I found that if I left at least 1.5MB available there was never a problem with using the SD card, although it significantly slowed things down and I stopped using it (same for the Memory Stick).
With the 700 and memory stick pro duo and over 2000 books, there's no slowdown and no performance hit at all.
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