I've decided to give OMV a try with a 320 GB disk for system which was the only disk available but didn't want to waste so much space for a ~2GB installation. Have done a lot of digging and testing and finally came up with a way of using the system disk for user data as well. Basically the steps are:
1. Install omv - sda1 = root partition, sda2 - extended and sda5 -swap.
2. Install omv-extras - LVM, Flash Memory + activate Flash Memory plugin per the instructions to minimize disk IO by the OS
3. Booted with GParted Live cd and downsized the root partition sda1 to 15 GB.
4. Booted OMV and used parted to create a new partition sda3 in the free space between sda1 (root partition) and sda2 (extended partition holding the swap filesystem).
5. Used CLI command "pvcreate /dev/sda3" to create a physical volume for use with LVM (unable to do this from OMV web interface).
6. The new LVM physical volume becomes visible in OMV web interface and I was then able to use the web GUI to create a volume group and logical volumes - shares, iSCSI LUNs etc.
Hope this helps someone.