Possibilities include:
1. Floppy disk may be bad (seems unlikely though, but try doing a full sector read and write verify using some software you can find --
this should work (don't let the name of the program fool you)),
2. Floppy drive in the SMD may be bad (broken/misaligned heads/tracking). I'm not familiar with what's in a real SMD itself, but many copiers back in the day just had standard run-of-the-mill IBM PC floppy drives in them and were easily replaceable,
3. Bad RAM (or cache) used for reading floppy contents on the SMD -- wouldn't surprise me given the age of these copiers,
4. Extremely wonky floppy drive on the Windows PC. I have actually run into some USB-based floppy drives that
completely misbehave (on both XP and Windows 7, i.e. purely a drive thing) -- they would throw I/O errors on reads, but not on writes (i.e. copying a file to a disk would work, but ejecting/reinserting and attempting to read the disk would result in complete failure). I've only seen this happen twice (and two completely different drives!), and both times the system was running XP.
Oh yeah: make sure that the floppy drive isn't wired backwards (cable flipped). If the 3.5" drive has a R/W access LED, if it's wired backwards the LED will be on constantly. Insertion of a disk into a drive in this state will result in the disk contents being completely trashed. If there's no access LED, just put your ear up against it and see if you can tell.