There is a readme file in the tarball that tries to provide step by step instructions. Once you've installed a couple of 3rd party applications (empacman is still one of my favorites to show to friends) it is as simple as dropping it onto the player with ftp. But if you've never installed anything before, it involves setting up a /programs0 partition, installing empeg-preinit, etc. In any case it is mostly documented in the readme.
You can use pretty much any GPS that I know of, most devices support at least NMEA output, and dbrashear provided the code to handle a couple that typically don't (tripmate&earthmate). I myself started off with a Garmin Venture, and later installed one of the 6-channel Trimble vehicle-tracking receivers. You can often get either the Trimble SV6 or the Motorola Oncore for next to nothing at
www.bgmicro.com, but you need to do some soldering before these can be connected to the empeg.
Drawbacks and functionality loss, when gpsapp runs the player can't use the serial port, so it will probably interfere with hijacks attemps of tracking what song is playing (/proc/empeg_notify?) While gpsapp is active, the buttons are all intercepted, but you can still change songs using the remote. Another drawback is that I tend to look too much at the empeg display while driving.
You might not have it running right now because it is still a very immature program. It only deals with pre-processed routes that have to be grabbed off of a website, which isn't too good at finding the best route to drive. There are some reports that during a long drive it sometimes seems to lock up the player and reboot.
Information about the actual app should be in the link in my signature