SYS detects the presence of LBA capability by querying the BIOS INT13,41 via its haveLBA() routine. When LBA is detected, the FAT32 LBA loader is installed for FAT32 partitions.
However, this loader makes use of 386+ instruction, and for example fails on an 8086 with a LBA enabled XT-IDE.
Workaround: try SYS /FORCE:CHS to install the FAT32 CHS loader.
Fix: make SYS detect a 386+ and refuse to install the FAT32 LBA loader otherwise.