You must boot from the "Install 3.1" disk and install AmigaOS3.1 that way. Do no boot from Workbench3.1 disk and install AmigaOS3.1

If you boot from your Workbench 3.1 disk, it will become the SYS: and it is something you don't want.
When creating partions, make sure the first partion (leftmost) is "bootable" and definitely smaller than 2gb. Make it fastfilesystem and don't forget to install fastfilesystem on the RDB as well.
Leave the logical names as DH0: DH1: DH2: (or HD0: HD1: HD2:) you can rename the "labels" as Workbench Work , etc...
If the above gives you the same result, there could be an incompatibility with the stock 68040.library and the setpatch command with your accelerator.
try renaming the 68040.library and 68060.library inside the libs directory to 68040.library.bak and 68060.library.bak (not the floppies)
turn on the machine and hold two mouse buttons.
boot with no startup-sequence
type the following:
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sys:
libs
dir 68#?
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you'll probably just see the 68040.library there I think.
rename it with the command:
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rename 68040.library 68040.library.bak
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Wait 5 seconds for all disk activity to finish and reboot. (if you reset too soon after the drive writes something, you risk invalidating your fastfilesystem formatted partion and that's a bad thing)
You will need the three libraries that are needed by your 060 board.
http://amiga.resource.cx/exp/cyberstorm2things that I "absolutely" needed to make my Amiga working properly: (with these disks, it felt like I could... CONQUER THE WORLD!)
1- AmigaOS3.1 floppies
2- A TCPIP stack (Miami and later MiamiDX on floppies (with the three keyfiles now on aminet) were what I had)
3- An external dialup modem with correct cable that I could use to go online and download stuff.
4- (optional: TERM ... a terminal program that allowed me to "ahem" download stuff

it was so much fun. )
5- An old version of AWeb or IBrowse so that I could download stuff.
6- AsimCDFileSystem or CacheCDFilesystem on floppies to configure my CDROM
7- A floppy with DiskMaster3
8- a floppy with commands like lha, latest setpatch from aminet.
9- the correct 68060 and 68040 libraries for my card on a floppy.
10- IdeFix on a floppy (I'm still not sure if I actually needed this)
...
11- Many years later, AmigaOS3.9 CD

After installing AmigaOS3.1 and booting properly from the harddrive with no floppies inserted (if it crashes, try renaming the 68040 and 68060 libraries like I told you and try again) you'll find a thing named PC0 in you Storage/Dosdrivers directory. If you doubleclick that and insert a pc formatted floppy (I think you have a high density floppy drive so your Amiga can read 1.44mb pc disks), your amiga is able to read its contents. This is how you can transfer files from your PC to your Amiga. The CrossDos version that came with AmigaOS3.1 is old and it only supports 8 character long filenames. You'll need CrossDos7
My Windows7 64 can not format floppies from its icon. I have to open a CMD and format using the dos command.