Hi, Tom -
That sometimes happens when a 3rd-party driver has been installed.
Although OS 9's Drive Setup can not initialize and format drives connected via firewire or USB, it can do that for SCSI drives. However, if the drive has had 3rd-party drivers installed, their presence can confound Drive Setup.
The solution then is to put the drive into a PC and format it as a PC drive. Then bring it back to the Mac; Drive Setup should then work on it. Unfortunately, it may be difficult to find a PC which can handle a SCSI drive.
An alternate may be to use OSX's Disk Utility, which in many ways is more robust and capable than OS 9's Drive Setup.
Since the drive is working now, redoing it may not be of great priority - but it is something to keep in mind for the future, such as if (or when) you install OSX on that machine.