Not sure about the 2.05 Workbench Install Disk. It may be that it's just a script and it's looking for partitions called HD0, HD1 etc. Or DH0, DH1. Maybe you could have a peek at the install script and see what it's looking for?
I'm not sure what the flickering is, but yes it could be PSU. I think alot of Amigas do that to some extent...even when the floppy drive "clicks" to check to see if there's a disk inside. All my Amigas do that, it has never caused me any problems. I use the noclick feature of multicx to solve that.
