Congrats on the free 1200..now let's get your hard-drive working.
So, everything should be connected correctly. The red line on the IDE cable should match the little "1" on the motherboard. The fact the drive is spinning up means its connected correctly so anyway, don't have to worry about that.
If the drive isn't bootable, you should still see the icons for it if you boot from a workbench disk. So that's good.
Now you want it to boot on its own. I'd go for a fresh install.
You'll need the set of Workbench 3.0 discs (or 3.1 if you have those roms, but probably not). You'll also need the Install disc with HDToolbox on it. Some one here will help you out with this and i'm sure you can google for it too.
Boot from the install disk. Load HDToolbox. Click New Drive, hold on off to the pub.
If you need more help pm me. It's dead easy (easier than a PC!! DAMMIT!!)