Ice Packs in theory should work, but like you point out, not as large as a surface area to work with. So they might not be as efficient.
The fog juice needs to heat to become fog, otherwise it won't turn into fog and just remain a liquid. The fog actually comes out and into the ice bucket and then out the front. You can open the top and see what is going on.
To get it more sideways, get a/some fan/s. We have a bunch of little 12" fans and some large box fans for bigger spaces. Just note, however, the using a fan with the ICE-101 will turn the stuff into regular fog fairly quick.
As for the HZ-300, I got my HZ-500 and love the thing. Talk about quiet and efficient. It ran for about 41 hours last week right out of the box and used a little more then 3/4s of a gallon of juice. But more on that latter.