This appears to be an issue with earlier versions of the Iomega driver. Mac OS 8.5 and later install a newer version that should prevent this dialog. Iomega Tools has an option to update any older driver on a cartridge with the current one when inserted. Therefore, you may experience the dialog the first time you insert a cartridge under Mac OS 8.5 before the driver is updated. Subsequent uses of the cartridge should not cause the dialog to appear.
To bypass the dialog, type command-period.