I'm cc'ing back to debian-boot, some more ideas may surface there.
I'm a bit confused about your present status (I've deleted our rather
lengthy conversation from this thread since it confuses me and I think
we should start fresh with some facts.)
1. You verified that bf24 version doesn't complain when initializing
2. At present your setup is failing to load root.bin, correct?
3. Have you found any combination or root.bin and rescue.bin that will
continue all the way to the installer?
4. What are you doing when the system hangs? What is the last message
5. Do you have access to a cdrom? ( If so, try
http://people.debian.org/~dwhedon/bootbf2.4.iso , it isn't a full
cdrom, just enough to get the network up, but if your floppy drive is
broken this may be our only choice. )
I see you have tried multiple floppies, downloaded multiple times, so
it doesn't look like your problem is corrupt floppy images or bad
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