There are a couple of thing that could cause this lack of compatibility. One is
the lack of support for the HD-20, which was dropped with System 6.0. Another
is that System 6.0.3 requires XPRAM (256 bytes versus 20 bytes) in the
Macintosh. A Macintosh Plus does not have XPRAM, and System 6.0.3 relies on
it. This is probably the reason the Macintosh 512Ke hangs when starting up. It
is looking for information from XPRAM and cannot find it. Starting up from an
HD-20 may be compounding the problem.
According to the System Software manual that came with System 6.0, the latest
version of system software recommended for a Macintosh 512Ke is System 4.1,
Finder 5.5. It doesn't seem to matter whether an HD-20 is in use or not.
Macintosh 512Ke users would do well to re-install Finder 5.5 and System 4.1 on
their machines.