Okay. From what I remember from my MK2 (and we're talking 12+ years), you *HAD* to use the buddha HD tools to install a drive bigger than 4GB. This was before OS 3.5 was out, so it's probably something to do with the <4GB barrier of OS3.1. I know that the Buddha, itself, handles the barrier problem.
I seem to remember that I had to install the buddha install disk, first, which wasn't a problem as I was using the SCSI off my A3000, initially. You may have to use a "boot drive" to install and format the drive. Format it, plain jane. Don't give your boot partition a boot priority, until you know you can format the entire drive, successfully.
Also, check the Individual Computers website and shoot a message to Jens. He's a great guy and wonderful to talk to. He'll do anything he can, to get his products working for you. They may have updated software for the Buddha.
I wish I could help more, but I haven't had or used a Buddha in years. I will tell you, though, that it's a great piece of tech.
Sorry you're having so many problems..... :-(