Well I tried it - could scarcely believe my eyes but switching to a modern FDC fixed it. Can format disks with turbo on.I would test with one that is much newer and maybe 16-bit (the floppy port will still work when put into an 8-bit slot). Since the PC/XT only has one clock for both the CPU and the bus, you are running the bus with 7.x MHz as well, but PC/XT cards are made to run at 4.77 MHz. The floppy controller is probably acting up because of that. Note that DOS is VERY picky about track 0, which is most likely why IMD works but DOS format does not. Or maybe IMD is even able to run the floppy disk controller at the correct speed, as it accesses it on a lower hardware level.
YesThat's an interesting thought, but the 765 has 500 msec idle after index. The usual procedure is to write the track, then use a multi-sector verify on the next rev. Should not be an issue, but it's worth investigating.
Question that I'm not clear on is does the FDC format correctly at 4.77MHz?