Mac128, it looks like you need to email me a clean copy of the S2.1F5.0 disk image.
The only place I could find a copy was at this Gamba link (only available for download via Archive.org). That image boots my Mac512 just fine, and it loads its own copy of the HD20 init. It even has HD20 diag apps on it. I then formatted an 800k disk with it and found it to be HFS (of course). I then swapped out F5.0 for Finder version 4.1 and rebooted. I reformatted my 800k disk. This time the single pixel was not present in the upper left of the Window, but when I rebooted with a more modern System disk, the pixel was there. That test shows that even F4.1 wouldn't work the "magic" necessary with System 2.1 to format my 800k disk MFS.
But the real problem began when I put Finder 5.0 back on the disk and tried to boot my HD20 with it. With this disk, my HD20 seems like its going to boot, but after 10 seconds of accessing, the Welcome to Macintosh box starts flashing (i.e., crash). So perhaps something is wrong with this System 2.1 disk, hence my need for your fresh copy.
Once I have your fresh copy, I will give my testing a go again.
Thanks.
P.S. Are you certain your copy of this System is version 2.1? Or is it really version 2.0.1? Regardless, I used SysVersion on the Gamba disk and it showed version 2.1.
The only place I could find a copy was at this Gamba link (only available for download via Archive.org). That image boots my Mac512 just fine, and it loads its own copy of the HD20 init. It even has HD20 diag apps on it. I then formatted an 800k disk with it and found it to be HFS (of course). I then swapped out F5.0 for Finder version 4.1 and rebooted. I reformatted my 800k disk. This time the single pixel was not present in the upper left of the Window, but when I rebooted with a more modern System disk, the pixel was there. That test shows that even F4.1 wouldn't work the "magic" necessary with System 2.1 to format my 800k disk MFS.
But the real problem began when I put Finder 5.0 back on the disk and tried to boot my HD20 with it. With this disk, my HD20 seems like its going to boot, but after 10 seconds of accessing, the Welcome to Macintosh box starts flashing (i.e., crash). So perhaps something is wrong with this System 2.1 disk, hence my need for your fresh copy.
Once I have your fresh copy, I will give my testing a go again.
Thanks.
P.S. Are you certain your copy of this System is version 2.1? Or is it really version 2.0.1? Regardless, I used SysVersion on the Gamba disk and it showed version 2.1.