I am not aware of any InCD 3 versus InCD 4 compatibility issue our test lab could reproduce (that is, I do have seen reports of incompatibility, but when our test labs attempted to reproduce it using the same conditions, we have observed no issue). A simple workaround will be to temporarily put your files to the hard disk, reformat media with InCD 4, and move back your files to newly formatted media.
The lines you see in the log file are only informative. They are useful for our technical support / development team in case things go wrong. But in your case, format does work properly, so you do not have to worry about the log file content.
SCSI error: (Op 5Ah (ModeSense10) => os=0h host=0h tgt=0h sns=05/24/00h Invalid field in CDB Info=0h=0
This is just the obsolete page code for MRW (2Ch) which is not supported by your device. This is a normal probe for device capabilities sequence.
Suspected firmware defect: media capacities returned by command 37 and command 81 do not match.
Format Unit command failed when sent with 336076 blocks to format. Apparently firmware reports a capacity it can't handle.
InCD will retry with alternative value.
Suspected firmware defect: assumed that command 35 has illegally reported service blocks.
This should be quite self explanatory: InCD detects that some information provided by the device does not match and tries its best to workaround it. It succeeds as:
Though, after that formatting with InCD4, Explorer shows a "file" with the "hs" attributes and the name "Non-Allocatable Space". And in the InCD Properties tab it shows "UDF v1.50".
Congratulations, you have successfully formatted your media. The hidden system file named "Non-Allocatable Space" is a mandatory file for UDF media which defect management is done at software level. This is absolutely normal. It is safe to put files on that media, your formatting succeeded and your software is watching for defective sectors to protect from data corruption.