I set aside 200Mb as DH0 and the other 4Gb as DH1.
You can only use 4.0 GB (4096 MB) with Kick 3.1, not 4.2 GB. Make the second partition smaller (3800 MB), then it should work.
One that you should install for sure is IDEFix97 off Aminet. That may provide some more consistency when it comes to the IDE<>CF transfers.
This is bad advice. IDEfix is known *not* to work with CF cards at all. You'd need
these inofficial patches to make it work and they don't apply to IDEfix97 from Aminet.
Speaking of which, is OS3.5 as resource intensive as OS3.9?
Yes, it is. However, speed loss is mainly caused by the new icon engine. As you don't like the icons anyway, you could disable them in Prefs/Workbench.