The formatting as FAT16 only to convert to NTFS on first boot was an issue even back then. I'm not sure why it was, but it got fixed (or the design limitation resolved) in Win2000

If someone is sufficiently motivated, the source code to atapi.sys (particularly the really ancient version that ships with stock NT4 with no service packs) is in the NT4 DDK and it's pretty idiosyncratic. It always uses CHS instead of LBA, for example (bit 6 of DriveSelect register is hardcoded to 0) so things could go weirdly once NT4 takes over your IDE disk controller from your BIOS, with it dropping to a less modern implementation of IDE than your BIOS has. But in all that maybe there is an explanation as to why 62 sectors. If you could dump the ATA IDENTIFY info for your disk (inside the VM's perspective I guess) that could help.

Well there must be something else to it not just that. I did the same experiment with good old MSDOS 6.22 if you install it to zeroized disk you get:

1Disk /dev/sdc: 7.45 GiB, 8000110592 bytes, 15625216 sectors
2Disk model: Compact Flash   
3Units: sectors of 1 * 512 = 512 bytes
4Sector size (logical/physical): 512 bytes / 512 bytes
5I/O size (minimum/optimal): 512 bytes / 512 bytes
6Disklabel type: dos
7Disk identifier: 0x00000000
8
9Device     Boot Start     End Sectors Size Id Type
10/dev/sdc1  *       62 4180721 4180660   2G  6 FAT16

Same as NT starts on 62. Same result boots in vmware Missing operating system on the PC however with this I could play the game that I create a partition with fdisk before install.

1Command (m for help): o
2Created a new DOS (MBR) disklabel with disk identifier 0x559feaea.
3   p   primary (0 primary, 0 extended, 4 free)
4   e   extended (container for logical partitions)
5Select (default p): p
6Partition number (1-4, default 1): 
7First sector (2048-15625215, default 2048): 
8Last sector, +/-sectors or +/-size{K,M,G,T,P} (2048-15625215, default 15625215): +1000M
9Hex code or alias (type L to list all): 06
10Changed type of partition 'Linux' to 'FAT16'.
11
12Command (m for help): w

So now it's aligned like that previous Win 98 was which boots on that PC.

1Disk /dev/sdc: 7.45 GiB, 8000110592 bytes, 15625216 sectors
2Disk model: Compact Flash   
3Units: sectors of 1 * 512 = 512 bytes
4Sector size (logical/physical): 512 bytes / 512 bytes
5I/O size (minimum/optimal): 512 bytes / 512 bytes
6Disklabel type: dos
7Disk identifier: 0x559feaea
8
9Device     Boot Start     End Sectors  Size Id Type
10/dev/sdc1  *     2048 2050047 2048000 1000M  6 FAT16

I installed MSDOS 6.22 fine on this, guess what same result in Vmware it works flawlessly on the PC I get "Missing Operating System" again. So there must be something more to this not just where it starts.

Fortunately the machine was able to USB boot so I eventually managed to install it with this trick:

1, Boot from the FreeDOS installer and quit right away
2, Manually create a FAT16 active primary partition on the disk (otherwise FreeDOS defaults to FAT32 and NT does not eat that)
3, Install full freedos
4, Take out the CFcard and put the Windows NT 4.0 Enterprise installer + LAN driver + VGA driver on the FAT16 dos partition
5, Boot into FreeDOS (For me it only even boots in safe mode on that box)
6, Install NT with winnt.exe /b