It's working now :-)
I still have another IDE flash drive, but it's a 3.5" one. I got a 2.5"-3.5" IDE cable, powered it off the floppy power connector, booted Install 3.0 off of DF1:, and lo and behold HDToolBox could create a partition. Formatted the partition and copied Workbench over and it boots!
Strangely, I then changed back to the 2.5" flash drive and it still works. So it appears to read existing partitions but not be able to create new ones.
Thanks for all the tips guys.
--
moto