It should work, but I haven't (and I don't think anyone else has, either). It won't exactly be easy; for best results, you can't untar it into the existing system, because there will be files you can't overwrite, and old files left around.

There are two obvious courses of action: with fanoush's initfs and telnet or ssh, you can just mount the root filesystem (and an mmc containing the Debian tarball and gnu tar), delete everything, and untar it in the root filesystem. (This would be my tendency, but I can't say it's necessarily better for any reason...)

Or, make a jffs2 filesystem of the appropriate size on a Linux PC, mount it with loopback, and fill it, then use flasher-3.0 to flash that on the device.