I just tried adding the "format:on" (no quotes, definitely no space as David said) line to the tools.ini file inside the System folder on the first D8B installation floppy via that Win98 computer, to see if it fails to start up this way (as you had mentioned earlier, had happened after adding that line).
The result for me, was the same as when trying to start without the format:on line added. Mackie OS Loader... loading... and that blinking asterisk, later.
Does it boot from the floppy to this point with the format:on line added? You said something about a corrupt floppy... or was that the reason, and it did boot to this point with format:on added?
Unfortunately, I can't try this beyond this point, because the Win98-D8B computer no longer has the big BFC cable attached internally (and all the D8B power supply components removed, and the PC power supply replaced with a standard one).
...and my actual "in service" D8B doesn't have a floppy drive (I put a silent Noctua fan behind that opening, to help push out hot air... and all my fans have an external control to regulate their speed, so I can drop them to a point where I hardly hear them... that's why that extra fan in the floppy opening is needed, IMO).
I'm thinking that editing the floppy from a Mac might just not work right, but am not sure. Maybe you know someone with a PC with a floppy drive, where you could make that quick edit?
I'm pretty sure, that you would get a "format harddrive - all data will be lost" prompt "somewhere" when booting from the first floppy (I would have thought it's on a connected VGA monitor, but it could also be on the D8B's built-in display). It doesn't just format the drive without interaction, I think... if I'd think that, I wouldn't have risked my Win98 system disk to be formatted just now, haha
...but yeah, if the floppy route doesn't work out for you, the IDE-to-CF route, and writing arjepsen's disc image to the drive should work.
Again, best of luck with all of that!