The video sounds normal until the heads assume that central position and do that "chunka chunka chunka chunka" thing. That's nothing I've seen before.
It's interesting also to see that the "chunkas" didn't happen when you tried the initialisation---but the heads still refused to retract any further than they do.
And yet, the heads clearly can retract fully when it comes time to unclamp and eject the disk, so it's not like there's a mechanical blocker. I don't have a lot of Twiggy repair experience, but I can't think of an obvious reason for the drive to refuse to retract the heads during ordinary seeks like yours does. There's a sensor that tells the head carriage when it has been fully extended (look for the red, brown, and orange wires feeding into it at bottom-right of
this photo), but there's no separate sensor to detect full retraction that I know of.
(My guess is that the head positioning is calibrated by the full-extension sensor, and then the disk drive controller just counts stepper motor "steps" after that. It seems unlikely to me that the stepper motor would still step but that its counting would go off, so I don't think it would be a problem with the computer losing track of where the heads are.)
Maybe it's what's on the media. Would it be possible to try formatting the disk in BLU? Perhaps the Office System is expecting an uninitialised disk to have been "more formatted" than yours is.
PS: Kudos on the precision of your cutout for the near head---it looks very nice!