He found an FWB web page, which offered an explanation and warning: "There is a potential for data loss or data corruption with certain Ultra DMA hard drives when transferring data at the full ultra DMA speed on the new Blue and White G3's. Examples of these drives include, but are not limited to, the Western Digital AC420400D, Maxtor 90840D6, and the Quantum Bigfoot TX series. Symptoms include the inability to copy or open data files, launch applications, or even installing an OS. A quick test is to open a self mounting disk image file (a file created by Apple's DiskCopy 6.2 or above). If an error occurs while opening this file, you most likely have the problem." The page goes on to describe the work-around: it involves modifying settings in Hard Disk ToolKit 3.02.
Update: Mark tried the work-around suggested by FWB. It worked, but was not a perfect solution. In particular: "Changing the drivers with FWB worked but my performance dropped from 28MB a sec to 12MB a sec no longer sufficient for digital video."