I've been using a handheld Cobra Marine HH350 for a few years now and it seems to work fine. It does not give the distance that I would like so I've been looking at going to a fixed mount with an 8ft antenna as my main radio and keeping the handheld as a back-up in case of a power failure.
West Marine has some nice 'compact' marine radios that would fit better in smaller boats. I'm looking at the Standard Horizon GX1600.
Your antenna is the key to distance/reception quality so dont skimp in that department ($150 for an upper mid range quality). Around $400 total for a good set up on a smaller boat.
Hand flares do meet CG requirements (some). I use Day/Night approved ones. MAKE SURE YOU CHECK THE EXPIRATION DATE ON THE FLARES BEFORE YOU PURCHASE THEM. You'd be surprised how many are expired hanging on the shelves in some stores.