BLTCON0:
The drive is completely outside of the case and is touching nothing at all at this point..
(And since this drive works perfectly on my 2000, I am not ready to cut any wires just yet..)
You can use a secondary spare cable though. Grab one from a PC, use the segment without the twist, and cut off wire #2.
The Diskchange signal is issued by the drive (voltage on wire #2 pulled low) when a disk has been inserted AND a step pulse has been received (which is the reason for the constant drive click - it's step pulses issued periodically by the OS to activate the diskchange signal in case a new disk has been inserted meanwhile).
If the OS boots with a disk already in Diskchange is not used at all - the disk is mounted by default and visible in workbench (you can verify that after disconnecting wire #2 - if a disk is placed a priori in the drive it'll be visible but subsequent changes will not, until a "diskchange df0:" command is issued).
So the behaviour you described in the original post seems to be consistent with the use or not use of the diskchange signal. Cutting it off and testing that way will make for a good test towards that direction.
OLDS MIKE:
May be a hardware incompatibility of some sort as this is a replacement drive for an A2000 and as stated it works fine in my 2000..
Any chance the drives from the 200 vs the 1200 are different and maybe some kind of incompatibility?
The original Amiga 2000 drives are 1.6" units which use dual voltage, +5 for the PCB and +12 for the motor, the A1200 ones are typical 1" slim units which only use +5 volts for both the motor and the PCB.
As far as signal specifications are concerned, they are perfectly interchangable.
Some operational parameters (e.g. head settle time or track-to-track step rate or motor-to-ready delay) might vary among various drive brands/models, but the common denominators set by Commodore are typically met by any drive, so under OS routines they all operate the same.
So no, there are no general incompatibilities, much less any that could cause what you described.
It seems either a signal problem or CIA chip semi-problem (interfering with other CIA registers upon Diskchange triggering). On the A500 it's easy to swap CIAs and cross-check, on the A1200 not that easy, but you can still do the diskchange signal test.
It could also be some tracking problem in the drive causing shorting of some sort to occur when pressing the button - momentarily generating a current load high enough to surge the A1200's power supply (and cause the guru due to lack of juice), but not the A2000's much beefier unit. You can test this by connecting a multimeter on the +5V rail and watching for a drop upon pressing the eject button.