Well, I returned the Iomega and bought a Verbatim drive elsewhere - exactly the same spec - and it works fine.
I can't be sure whether the Iomega was faulty (it worked normally when connected to a PC) or just incompatible. I just mention it in case it helps anyone contemplating buying one for use with a Xacti.
Nikon D40, Sigma 55-200 zoom
Nikon Coolpix 3500
Sanyo Xacti HD700
Sony HVR-A1 (work)