Not sure where you would hear something like that, seems to be just rumors or some other mis-informed person
You would normally want to run the first HD as Primary-Master, where the Primary means the first IDE channel and Master is the first physical HD. Of course if you have only that one drive connected to the IDE port/connector/channel then it has to be jumpered for either Master or Single drive depending on the manufacturers settings guide
No you shouldn't have any problems as long as both the BIOS and the OS see the full capacity of the HD and no it does not apply to only UDMA 66/100/133, it applys to all HD's connected to an IDE controller
As for the S.M.A.R.T. setting, here's Western Digital's Glossary info on what it means:
S.M.A.R.T. (Self-Monitoring, Analysis, and Reporting Technology) —
S.M.A.R.T. enables a drive’s internal status to be monitored through diagnostic commands at the host level and during off-line activities. S.M.A.R.T. devices employ data analysis Algorithms that are used to predict the likelihood of some near-term degradation or fault conditions. When used with a S.M.A.R.T. application, the drive can alert the host system of a negative reliability status condition. The host system can then warn the user of the impending risk of data loss and recommend an appropriate action.