The plot thickens:
I bought a NeweTech miniStack v2 (500 GB) to use for backing up my Intel Mac mini. I also have a LaCie mini Hard Drive and hub (see, so it all looks pretty when stacked up).
I setup Time Machine, and while my Powerbook finished backing up through AFP (wireless), the mini was abysmally slow. Elsewhere in this forums I saw the recommendation to reformat usign GUID Partition Table (drive came with the older Apple Partition Map scheme.
As described above, I got the Input/Output Error. Tried doing it from the Tiger installer CD that came with the computer (not the same as the retail DVD - that one does not support Intel macs). Disk Utility just sat there with the spinning beach ball of death instead of the immediate error.
So I tried something else: I plugged in the miniStack to my Powerbook G4 running Leopard. From there, Disk Utility successfully formatted the drive! So it's probably not a Leopard Disk Utility bug, at least not on PowerPC computers.
One other thing that could be the issue: The drive was connected to my mac like this:
Mac mini -> LaCie mini HD -> miniStack v2.
(Firewire).
What if the problem is in the LaCie's FW hub or if Mac OS has some trouble with the daisy chained drives? In the meantime, I reconnected like this:
Mac mini -> miniStack v2 -> LaCie mini HD.
We'll see if Time Machine behaves nicely now.