Yeah with a decent chip an error like that wouldn't matter. Throw in any old IDE HDD, boot Slayers disc and format/setup the HDD. That is; the disc has the options to rebuild everything on an unformatted (or wrong format) bare drive.
I'm not up to date with current boot discs but that's what I've always done with my chipped consoles. I'm not claiming Slayers is better that's just what I've always done in the past and it never fails.
Never encountered any HDD I couldn't use either, no matter what brand.
Edit:
After reading through the OP's posts I suspect either the DVD drive is failing or the chip is a cheap crappy one...if the latter is the case it's rather pointless as it's no better than softmod.
I can't make out what chip it is though, is there anything printed on the board?
I haven't looked at different chips for a long time now so looking at what I can see there doesn't ring any bells.