Done some more testing, it's only USB sticks that are causing the NAK timeout's, other USB devices and CF card in CF reader are working fine.
Note this in both ZII and ZIII modes and the system still hangs if I disable USB in ZIII mode.
I also tried another 68040 library (Cosmo's) and the behavior is the same. Some good news though, system is noticeably faster with Cosmos' 68040 library!
Maybe we should find out what OS those users with issues have, again mine is OS3.9 with BB2 update. (Classic Workbench version)