How did you use a 5200 series Mac to format the drive? The powermac uses IDE interface and the SE is SCSI. That's your first issue. I am surprised it hasn't destroyed itself on you already.

If you used an external enclosure that would make sense. The problem here lies in that 7.6.1 doesn't use MFS and the drive is not bootable. Make sure it's formatted that way. You will need a patched HD setup to use on non apple drives or a hard disk toolkit(or silver lining) to make it bootable. After that it should go pretty smooth. Look up on the internet for third party HD in macs on the net you should see a bunch of info on the subject if you don't find it here.

Hope that helps.