As @robin-fo states, it may be possible to "Get File Info..." from ResEdit on the partition itself, and set the "Invisible" flag. Never tried it...but it is possible that it works.
If you figure out how to do this over the internet one day, I’ll play it against you with my SE :).
This is a neat one! Anxious to see how the cable goes.
I would venture that running System 3 and copying it allows for something to be set that System 7 does not do (or does something else) to the boot blocks that will not allow System 3 to start up. I’d bet if you copied the System 3 System Folder under System 7, but then started from a System 6...
I have had the program for years. I think I’ve got Bryce 2-4 on my machines, and I also have a version for OS X as well that does run on 10.6, 10.7, etc. so much fun as a kid.