First let me explain the differences between the Atari (Epson SMD-340) and some other drives. The Epson SMD-340 that Atari is currently selling with the upgrade kit for the MEGA STE, DOES NOT have the capability to provide an output of density on pin 2. This means that if you use this drive you will have to use a switch to switch densities. As it comes from Atari, it is jumpered as follows:
Pin 14-15 = Drive Select 0 (drive A) Pin 5-13 = The mode (density) is switched by the HDI input (pin 2) Pin 1-2 = The 2 meg mode (1.44) is set by the HDI input HIGHOther jumper settings: 15-16=DS1, 6-7=DS2, 7-8=DS3, 2-3=2 meg mode set by HDI input LOW, and 4-5=The mode is switched by the internal sensor.
As you may have figured out by now there are a couple of ways to hook up this drive. On mine, I removed the 5-13 jumper and installed 4-5. This lets the drive switch modes to 1.44 when a disk with the 1.44 meg extra hole is inserted. The reason I did it this way is so I can easily tell my 1.44 disk from my 720K disk. If you want to use disk without the extra hole for both densities, then leave 5-13 jumpered and configure jumper pins 1-2 or 2-3 depending on how you want to control the density, with a high (+5) or low (ground). You must then manually switch the density.
Now you must also be able to switch the 8 mhz clock going to pin 18 of the floppy controller chip to 16 mhz for HD (1.44) operation. I simply bent the pin out and connected it to the center post of a spdt toggle switch and connected the 8 mhz clock (from the empty pin 18 socket) to one side, and connected the other side to 16 mhz (pin 39 of video shifter chip). You could also have a switch to control an IC that would allow you to control both clock rate and density select with one switch, or use a dpdt switch.
I used a 74F157 chip to control the clock going to the Ajax chip. It was the easiest way I could find with the the TTL chips I had at my disposal. The connections are minimal and simple; pin 8 to ground, pin 16 to +5v, pin 1 (strobe) to pin 2 of the drive, pin 14 to 16mhz (pin 39 of shifter), pin 13 to 8mhz, and pin 12 to pin 18 of the Ajax (floppy cont.) Also pin 15 must go to ground. That's the enable pin.
In the above circuit, the 157 chip will send the 16 mhz clock to the floppy controller when a HD disk is inserted in drive A, and the drive select for that drive goes low (selected). In all other cases, 8 mhz is sent to the controller. This will allow the use of both drive types on the system.
There are many different ways to hook up drives. Make sure that you get the jumper settings with the drive that you get. Life can be tough without them.