I think its a RAM issue. For the OS and init to load its tight. Part of the reason being you can not use a system like 1.0. You need 2.1 or better for HFS. The HD20 uses HFS and this was not introduced until 2.1 when the 512k was out. The Plus and 512ke, with updated ROMS that have the init, the HD20 can be used for startup.
But was there not a floppy disk made called HD20 startup? I could be wrong, but I thought it did some ninja work to load the init first then the 128k/512k could boot from it.
edit: I am not sure how the Floppy EMU works though for HD20. If its acting exactly like an HD20 you would need the init or ROM upgrade. If its acts like a REALLY huge floppy disk, then I am not sure. My guess if you need the init.