Dual booting rather than rooting is a nice option. I've followed THIS CM7 option and found that it works great. Under CM7 on the mSD, my NC seems to run even faster than the standard NC 1.2. Scrolling is smoother and even internet access seems faster.
I prefer this option as it preserves the original stock OS and gives you the option every time you boot up to select whether you want to use CM7 or the stock B&N application. This lets me use the NC as a reader (stock OS), or as a fully-functioning tablet (CM7).
One problem that I found (and solved after 2 frustrating days) pertains to the mSD card formatting. I tried over 20 times to format and flash the image on various mSD cards, only to find that the cards weren't readable by either WinXP or my NC.
I've read lots of discussions on this and other boards concerning which mSD cards work best. I had to buy and try several before determining that the problem, at least for me, wasn't the mSD, but my laptop's SD R/W unit. My Dell D430 is over three years old (still love it) and apparently has an SD R/W unit that can't handle larger mSD cards.
I bought a $12 USB Multi R/W unit, reformatted my mSD cards, reflashed images, and followed the rest of the instructions to find SUCCESS!
I hope this information can save others from a similar waste of time (although I learned a lot through my research and chats with Dell and Sandisk CSRs).
FYI, when used in combination with a rooted Android Smartphone running Wifi Tether, I can now use my NC color anywhere, turning my phone into a free hotspot. CM7 allows ad-hoc networking while BN's stock 1.2 OS doesn't.