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Have you created a Hard Drive File yet?
Use the Hard Drive tab and click on the Add Hardfile button. Create an appropriate size like 1GB or 512MB depending on what your needs are and of course how much free hard drive space you have on your PC's hard drive. Remember this file will take up whatever size you setup in this section.
After creating the hardfile you should use the F12 key to mount the Install disk of OS 3.1 and boot up like a floppy. Now you shoul be able to format this hardfile using the FFS and any other settings you wish.
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