I have a misc item that I want the play to 'equip' to change a setting on a script of mine. Im pretty sure its possible, but can I stop the "This item cannot be equipped" message from coming up?

The message is contained in the string game setting "SCantEquipGeneric". You could just change that to a space character.

I'm not sure how you would do it if you only want it to display that message when you try to equip your item. Maybe you could run a quest script with a menu mode block for the inventory menu, using GetActiveMenuSelection to figure out if the player is about to click on your item, then using SetStringGameSettingEX to change the message for a couple seconds.

Not sure what you would do if the player had your item hot-keyed though.