Clicking "initialize" in order to see if the HD20 is then formatted MFS... Yes, that would be an interesting test. But as I wrote in this post, it would be most practical to first partition the HD20 and then format one partition MFS. Of course, to do that, a programmer among us would need to compile the Nested Volume Manager code here. And if you read through that Nested Volume Manager article, you can see they talk about MFS formatting too. So that article itself lends evidence to the fact people have formatted their HD20's MFS. It just seems that you wouldn't want to format the entire drive as MFS, for reason I mentioned in my other post.
My HD20 boots just fine off an unaltered boot floppy that has System 2.1 and Finder 4.1 or higher (I "altered" your original floppy to put Finder 4.1 on it). More specifically, if I used an unaltered HD20 INIT on your System 2.1 disk and with Finder 4.1 on it, it properly hands control over to the HD20 during boot, the floppy ejects, and the HD20 boots and runs just fine (so long as I have System 3.0 and Finder 5.1 on the HD20). But in my 3 test cases above, you can see that I had modified the HD20 INIT on the boot floppy. That's why, in all 3 of those cases, the HD20 did not boot. In other words, if you delete any resource in the HD20 INIT, the HD20 will not boot. So instead, in my 3 test cases above, the boot floppy did not eject -- it continued booting to the Finder. It was at that point that the system either crashed or gave me an "Initialize" dialog for the HD20.
Finally, keep in mind that if I put System 4.1 and Finder 6.0 on my HD20, even with a virgin HD20 INIT on your System 2.1 / Finder 4.1 floppy, the HD20 will not boot and instead the Welcome to Macintosh box will flicker and the computer will lock up at that point.
Like I said, per your requests in posts earlier in this thread, I had to alter the System 2.1 disk you gave me. The 2 changes I made were: (1) put the HD20 INIT on it (and all my "test variations" of the HD20 INIT, one at a time) and (2) put Finder 4.1 on it. Once you put Finder 4.1 on your disk, it becomes "magic." Meaning, with Finder 4.1 on it, I can then format 800k disks as MFS. I could not do that simply by adding the HD20 INIT alone to your virgin disk. The reason is because the Finder version you have on your disk was too new. But after downgrading your Finder to version 4.1, it formats 800k disks as MFS.
I also found that sometimes I could mount an HFS formatted 800k floppy (with System 2.1 / Finder 4.1 / virgin HD20 INIT), but the HFS floppy's contents would not show up in the Finder (the window would be blank) -- but it didn't ask me to initialize the disk in such a case. Perhaps this unusual anomaly occurs because System 2.1 is HFS aware whereas Finder 4.1 is not.
I did confirm that your virgin System 2.1 / Finder 5.0 disk would not boot my HD20 if my HD20 had System 4.1 and Finder 6.0 on it. However, I did not try to test my HD20 using your System 2.1 and Finder 5.0, nor did I try using your System 2.1 and Finder 4.1. But like I stated above, Finder 5.0 prevents me from making 800k MFS disks, so there's little value in me testing that case. However, testing System 2.1 and Finder 4.1 on my HD20, and then trying the S2.1F4.1 boot floppy with a virgin HD20 INIT may be an interesting test. If it works, it would show that Systems and Finders older than the version that originally shipped with the HD20 could in fact be used to boot the HD20.