No, it doesn't run
And it doesn't work
Not sure why, must be some other internal stuff in ParaDOS detecting the wrong block size. Try this (on the original), it converts IBM160 to use 2 reserved tracks and 9 sectors per track. The rest of the format is the same, but you have to do three things:
1. Enable Electro Formats (that means you'll also get large DATA and SYSTEM formats on 80 track/DS drives).
2. Enable IBM rather than ROMDOS D1
3. Configure the required drive to 80 track double sided (this should be the default for drive B).
DFC7: 24 00 b0 00 02 00 01 09 2A
FF69: B0 F8 08 56 58 FF
The 56 58 here allows it to show up as VX if you log the drive, so if you've got it all set up correctly you'll get VX, 128 entries, Total Space 704K.
Cheers,
Richard