The OP said twice that he's NOT using an NTFS drive. He's formatted it in a lixux format.
I'm wondering if the problem might have something to do with the external hard drive starting up. I think this is related to the powering off vs hard reboot thing mentioned above, but might be brand specific.
Ie I have several hard drives, but one of them will shut down even with a soft boot. Seems like it shuts down whenever the communication with the host is interrupted. I got that hard disk to work with the Azbox, but I'm wondering if you have problems getting a HD recognized, you might try plugging in the USB cable hot, after everything is booted up, or perhaps there is some hard disk setting that could keep the thing running when it's communication is interrupted.
I tried using the linux format once, but found it very inconvenient. Using FAT32, I can move the HD between 3 different receivers, and then use it in my computers without any translation involved. With the linux format, you're pretty much dedicating that HD to the AZbox.
I don't know if there is a maximum size HD allowed or not, but since there have been several people with issues with the 1000 GB drives, I've stayed with 500 GB and below. Since the receiver can't record any high bitrate content, you really don't need tons of capacity. If they ever fix the bitrate cap, then yeah, maybe a bigger hard drive might be important, but even then I think I'd just transfer recordings over to a computer. I think that I'd put the 1000 GB in NTFS on a computer, and use a 500GB FAT32 on the Azbox, and transfer recordings over to the computer for storage, since you can play them from the network anyway.