Using an emulator may cause odd behavior. Why? Because many of them do some pretty bizarre things in terms of storage, like presenting disk images as giant floppy disks to the emulated system instead of real hard drives. Generally a classic MacOS hard drive has an Apple Partition Map layout with a driver partition for the controller you are using followed by data partitions. Drive Setup is supposed to install it when a drive is initialized, but emulators may trip it up.

What versions of Drive Setup are you trying? You should be able to patch 1.x under an emulator using ResEdit although I would give un-patched 1.7.3 a shot first.

http://download.info.apple.com/Apple_Support_Area/Apple_Software_Updates/English-North_American/Macintosh/Utilities/Drive_Setup/Drive_Setup_1.7.3.smi.bin

Also, I would stick to SD cards 8GB and under. Apple's IDE implementation is more brain dead then you think. Somehow the PC specific Int 13h limit of 8.4GB shows up in early Apple IDE hardware. It may be flipping out dealing with a larger drive (variables are likely overflowing)

https://groups.google.com/forum/#!topic/comp.sys.mac.hardware.storage/LdK3lWqVFGw