i put a card reader in my XL, which by looks seems to be the very same one that ships with the factory MCD.
it's the IISDMS from amtron.com.
i cannot seem to use my Microdrive (1gb) in it. after one or two disk operations, i'll get a ( Disk Read Error ) message, and then on the next operation i'll get ( Waiting... ) which never ends.
if i remove the disk during that, then i'll get another Disk Error and can resume.
even though i have 1.2 OS, i did try to partition my Microdrive as 900Mb primary instead of 1gb, but this didn't help - my guess is not the XL but an incompatability with the reader and the MD - possibly about power-states since the MD is much different in this way than normal CF.
my MD is a few years old as well... without some more debug details from the OS it's hard to tell what's wrong.
i have been using a traditional 512Mb flash CF and it has been working fine.