Did you buy the latest ROM revision for the SupraDrive XP? There was someone selling it on this forum a while ago, and on eBay. Not very expensive and fixes a lot of problems / compatibility. Do a forum search for the drive name to find those threads.
Last year I set up one of these on a similarly equipped A500 and it worked fine with a 105 MB drive installed (but I had purchased the latest ROM for it some years previously).
Yes, I remember this interface being a bit finicky with the old ROM. There is no problem booting and accessing with the original 20 MB Seagate?
I would use the same SCSI ID as on the original Seagate. You do need Termination on the HD. What jumpers are set on the HD? Do you always see the 2 MB of FASTRAM? What jumpers are set on the 500XP?