Floppy emulator

[Zac67]

MFM being so simple, it should be pretty fast to encode using a table - or rather two, one when previous bit was 0 and one for 1.
Dunno the Atmel Controller, but 8 MHz clock frequency for a 500 kbit/s signal gives 16 clocks/bit which should be plenty of time - provided you've got a shifting register at hand and don't have to do it in software...

[Zac67]

Great to hear about your progress (there are always drawbacks, so keep going).

I think you should keep the 'use this device as a card reader, too' in mind while making changes to the hardware. It'd be a very good chance to attach the emulator in such a way that it can be used to access the flash card in a more efficient way (faster and higher capacity access).
Maybe through serial (probably slow), parallel (lot of hardware involved) or through the floppy port, just with a more efficient protocol - after all, you don't really need MFM for transport.
If you provide the means of accessing the flash card for real, someone else will probably write a driver for it, so it could be used as a hard drive replacement. It could even auto boot, just emulate booting a workbench disk with the drivers, mount the card and go on from there. How does that sound?