Windows CE is based neither on Windows 95 or Windows NT. It is a complete reimplementation of a "Windows flavoured" OS. It has many differences. From the API point of view, it possibly has more in common with Windows 98, but it is a very very different OS. At least, it was when I last used it (2 or 3 years ago). Windows CE can easily fit into the smallest sensibly-priced Flash.
Perhaps you misunderstood what this "CD software hardware dev" said, are reading more into what he said, or perhaps he was just wrong.