The boot disk requirement depends on how you answer the questions. If you say "yes" to the IDEfix question, the installer tries to copy all parts of IDEfix onto the boot floppy which definitely does not fit on 880kb.
But the message in this case should be "disk full" and not "read error". Are you sure that the floppy disk has the read error ? If the CD-ROM has read errors, you should adjust the mountlist. Try to reduce the MaxTransfer value to 0xfe00.
Bye,
Thomas