I've had that problem on the Milan and the Falcon. I ended up using AHDI, or ICD (depending on partition size) (I think I also succeeded with an older version of HD Driver) to write over the HD Driver boot sector so I could then access the disk. Its a weird flaw, which happens more with the later HD Drivers I find, I did try 8 on the Milan and had problems so reverted back to the version on my Milan install floppy. I also use Diamond Edge, I'm not sure whether the two things are linked, but I've become uneasy with Diamond over the years, I'm not entirely sure it's reliable as I've had a few problems that its caused (not a good thing for a disk problem solving program). I also think it has probs with anything other that FAT 16 partitions.
I don't think background DMA works on the Milan, ASFAIK it doesn't have a DMA chip so it doesn't work the way it does on the ST/Falcon
Firebee, Falcon CT60, Milan 040, Falcon MkI, TT, Mega STe, Mega ST + Lots of STs of various flavours