Yes, 2 cell 700mah lipo's should fly around quite nicely. I would probably go with multiple smaller batteries, just to save on weight. Weight is important. It really is night and day when you remove even half an ounce off this (7oz) plane.
I would add that I received my lipos today, one 3 cell 700mAH. I also ordered a 450mAH 11.1v lipo and flew it first. It saves about half an ounce off the total weight from the stock batteries, has unlimited vertical in spades, and I flew it about 20something minutes today. If you had two batteries, that would be all the fun you could handle no doubt.
Keep in mind, the 3 cell lipo's will eat up a brushed IPS motor, I use them on a brushless feigao motor on B gearing with a 10x47 prop. 2 cell 700mAH lipo's should weigh quite a few grams lighter than the stock batteries, definitely not too light but keep in mind the lighter the plane the better. You surely couldn't go wrong with a 300-500mAH 2 cell batteries on stock motor.
The 1050 would probably be too heavy and flying it wouldn't be very fun, and you would definitely destroy your motors faster as running them at 3/4-full throttle almost consantly is going to burn that motor into dust, and believe me when I say that 700mAH max is more than you would ever need in terms of longetivity. I would get two 300-500mAH 2 cell lipos, if I were going to do it with a stock brushed motor.
As for where to stick the lipo's, that's up to you. You're going to want them as far forward as possible. To get mine to balance without adding dead weight, that meant modifying the stock battery area. I ripped out the front, widened it, and deepened it with a taper in it so I could squish the batteries in for added security (instead of velcro). I haven't had one fall out yet, the cowl pretty much keeps them in so the friction hold is just added security. Get everything as far forward as you can and go from there.
To be honest though, I probably wouldn't use lipo's without a programmable ESC and definitely not during my first two stock motors. You're going to crash, and sometimes land a bit hard. Would hate for a lipo to pop and burn your fine aircraft. My nimh's have taken quite a beating, had plenty of power, were cheap, and with three stock batteries I could fly all day. Only drawback was the weight but even so it flew very nicely, easily within a basketball court (one of the big high school ones, single court).
Whatever you get, be sure you get a heat shield for the motor and mod the cowling/fuse to throw some air over it. Keep the heat down, reduce the wear, save the motor. You get to flying every day and before you know it your performance is down and you need another motor.