I'm not sure how you're going to get around the partition size issues without a smaller drive. With a PC MBR, you can maybe fake it out by creating four primary partitions beneath the (apparent) 4GB limit. This renders the rest of the drive unusable. I'm not sure something like that is possible with the Amiga.
For the bad sectors, I'm not too well versed on hard drive archaeology but modern drives, at least, remap bad sectors transparent to the OS. So if you're seeing bad sectors it's probably pretty whacked :-) Some filesystems (Linux ext2/ext3 for example) have support for mapping around bad sectors. I'm about positive the AMIX filesystems do NOT have such support.
If this works for you with a smaller drive that's good to know, since I don't think we have drive size limitations documented anywhere...