Tech Comm was able to reproduce this problem exactly as you describe.
There IS a compatibility problem with the DuoDisk and the Rev 3 Apple IIGS main
logic board.
A check with Engineering provided us with the only workaround. Do NOT use the
DuoDisk on the SmartPort. There is some code in the ROM that does not handle
the interface to a DuoDisk properly. As of February, 1990, the only workaround
is to use the DuoDisk on an interface card.