I use ITC with a pair of 3.5" drives that look like DS/DD 8" drives to the system.
I format them with INIT under CDOS, but then boot to ITC and use PIP or XMODEM to actually transfer files. (I also use Martin's XMODEM configured for the TUART card.)
I don't remember the details, but I do remember having trouble with disks where I had moved some files to the disk under CDOS and then went on to work with them under ITC CP/M. If I recall correctly, I could read them with no problem and use PIP to pull things off of them, but for anything I wanted to read and write to under ITC CP/M I needed to start with it freshly formatted and do all the file transfers under CP/M. (If I remember right, it was kind of random about how much I could use a disk that I didn't prepare that way before it was corrupted.)
Bottom line for me has been that if I'm using it under ITC CP/M, I had better always let ITC CP/M create the directory entries. (With the exception of copying files off a read-only disk created under CDOS if I needed to.) I never was able to figure out why, but I didn't really dig that deep since it wasn't that hard for me to work around with the way I tend to do things.
Thanks,
Jim