The 3rd party tools are more for if you're using a drive that doesn't have an Apple logo on it, as what happens then is that while the drive is recognised by the Mac OS tools like Drive Setup, it shows up as "not supported" and can't be formatted by the Apple tools - only non-Apple tools will format non-Apple drives.

Does the hard drive spin up when you start the machine up? If you run Apple HD SC Setup or Drive Setup when the hard drive is installed, can you see the drive in the listing? The only time you said you tried this was when it was in there along with the original drive, but was the termination active that time, as it should only be set to terminate if it's right at the end of the SCSI cable. Have you set a unique SCSI ID on the drive?