OS 7.6.1 can only boot from 2GB partitions, but can use anything you have left for non bootable partitions. OS 8.1 can boot from larger then 2GB partitions.

The early PPC macs had issues on the nubus when using SCSI cards and any other card that did bus mastering (like video capture cards), so you are stuck with the internal SCSI if you want to do audio work.