Experience with KS2.04 and its use is going to be limited I'm afraid (I haven't used it in ~20 years), so you may have to wait a while for someone experienced with it to help. Have you thought of either setting up a dual boot system (1.3/2.04 and 3.1) or just moving to KS3.1? The reason they came up with 3.1 was to fix problems in 2.04.
In KS3.1, if you see the unformatted partitions on the Workbench, they should format unless the file system is not stored on the HDD, the format command is not in the SYS:System directory, or the RDB has an error in it. A bit more information on the type of hard drive, and screen shots during setup would help. Plus, any controller that supports RDB should allow use of the Hard Disk Toolbox, and not require the Supra install disk. I know this is of no immediate help, but I hate seeing a posted problem go unanswered as if no one cares.