I was able to go forward one step by checking out the emumode.txt file present. You can manually change its content from 0 (3.5 mac disk mode) to 1 (HD20 mode) using a modern computer. Once put back in the floppyEMU, it was strangely still in 3.5 disk mode, but I was able to go to the mode selection menu, have it freeze again, but after resetting, the mode would stick to HD20.
Next up, I figured out that my HD20.dsk 100 Mb, did I make this one myself) doesn't want to boot at all and might be the culprit here.
Once I used another file called HD20System32.dsk (20 Mb, probably was provided by BMOW but I renamed it?), all is well, screenshot proof: