Others may have better advice, and I don't personally own any Zip drives, but I would think you would NOT want to add it as a SCSI device but simply install it as you would on any PC? If you shut down the XP VM, remove the drive you added from the configuration, restart the VM, then just plug the drive into a USB port while you're actively using the VM (not the host OS), it should either automatically install the drive, or you may need to provide the IOmega drivers.
The "delayed write failed" indicates the drive is not writable from XP's perspective. This can happen, for example, when XP thinks a drive is fixed but it's really removable. That error was more hassle in XP than in later versions of windows as XP was rather dumb about knowing what drives are removable. When XP was developed a decade ago, the only removable drives were tiny. Now they're quite large and XP gets confused. XP is also often unable to figure out when a drive becomes available for writing again and just keeps giving you the error over and over even if the drive is now available. All of that has been vastly improved in Windows 7.
Once you have the drive working in the VM, be sure to check the properties and make sure it's shown a "removable". If not, you should configure it so it is and it should work smoothly. Note, however, the default behavior is it will belong to whatever operating system is active when you plug it in. Once the XP VM knows about it, you may need to go into the VM menu and disconnect it from the host and connect it to the VM or configure the VM to automatically connect to it.
