It's looking very appealing, but I may have found a solution.
I had a good idea and popped out the 10GB drive, and plugged it into a PATA>USB converter. With a Gparted + Ubuntu live usb stick, I was able to partition the drive with some HFS and FAT partitions. I decided the easiest way to do this would be to install System 7 to the drive... from the drive! I made 2 main partitions, one for the installation files, and an empty one to be installed to. I also created a disk image of my old 500MB hard drive with Mac OS 8 and plopped that on the drive as well, just in case I needed to boot from it.
Then... uh oh. The drive isn't detected at all. I get the :?: no boot disk icon flashing when it boots. I made a Disk Tools 1 disk and it isn't detecting the drive either. I have the pin header set to "master". What did I do wrong?
Edit: Lol, I looked up the spec sheet for the drive and apparently with standalone installs you're supposed to remove the jumper completely. It works now!