Yes, the SD-card has to be formatted FAT16. This is also why you can't use cards over 2 Gb. It's hard for me to imagine needing over 2 Gb on a computer as small as the Z80MC!
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Since small cards are getting rare and modern PCs often make it difficult or impossible to format FAT16, I include a 2 Gb SD-card, and format it in FAT16 for you.
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I agree that the SD-card socket and USB-to-SD-card adapter supplied with the kit are poor (Chinese quality). But that's about all I can find these days. :-(
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I'm trying to follow the file size/format discussions, but don't really have a clue about how the internals of CP/M disk formats work. But I should mention that there is a *lot* of RAM on the Z80MC. The Z80-SIO comes with a 128K RAM, of which only 32k is in use. And it has jumpers and bank-switching logic to use a 512k RAM instead.
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Happy New Year!
Lee
--
Excellence does not require perfection. -- Henry James