Yes, the limit for that KS2 rom is 40MB HD. Some have reported that with KS 37.300 will work with larger HDs if you set the first partition to 40MB, and then make the others 2GB or less. Might be worth trying.
Will try this and report back to y'all. Otherwise I will try with a A1200 becouse of all the hassel of getting a KS 37.350 chip.