Great to hear it's booting! Windows 3.11 is a bit of a surprise, I guess someone was really putting off an upgrade.
The file error could simply just be a software issue, if more and more files start disappearing then that can be a sign an LLF is due. Normally I find it occurs in the most used parts of the disk - annoyingly this tends to be bits of the file allocation table. The data is regularly rewritten and the signal nice and strong - but the sector markers written at the factory have just been read thousands of times and eventually lose strength. I'm no scientist, this is just my experience. Use and time both seem to effect it. Often I get machines arrive here that've been in storage, and find a drive only boots a few times before it starts quickly deterorating - an LLF fixes it completely.
For drives that don't need an LLF, but I know it's coming up soon, I'll do a non-destructive LLF with Norton Calibrate on a few (CALIBRAT.EXE - part of Norton Utilities 6 for DOS). I think SpeedStor also has a Re-Initialize function but I'm yet to try it. 90% of the time however I just start fresh - usually because I have my own personal software preferences anyway and I find booting Debug to be less hassle for a drive I plan to wipe anyway. [Disclaimer: I assume these processes will not destroy track 0 - however I have not tried this on a machine which requires a configuration record]
Disk Manager was often handed out with hard drives, was the free program you often got. I much prefer SpeedStor and consider it (personally) best in class.
Some controllers "latch" the drive - so the light will show you what drive is currently selected, rather than just activity. On some controllers it's one way or the other and some give you a jumper to change how it's used. For your case, your HDD LED should actually connect to that 4 pin header on the top left of the card - that will always show activity.
Feel free to ignore this last bit, I just wanted to have a quick blab about how your PC knows how big the hard drive is, so you can see what I mean more clearly about writing the config record.
The cylinder/head/sector figures come from either:
1) CMOS - on a 286 these entries are often limited to a select few with 17 sectors per track (but RLL is 26, and ESDI usually 34) - needs to be set on the PC itself
2) Jumpers - Boot ROM program reads the selected options and sets the parameters (old XT controllers often supported 10MB / 15MB and a couple of 20's or similar - often 1 to 8 options) - needs to be set on the controller
3) Config record - ROM program blindly reads track 0 of the first drive and reads a proprietary config record for that particular controller - generally not understandable by other controllers and a lack of standards means software will not write these
4) MBR - computer CMOS is set to the wrong type, but a program in the first few sectors of track 0 updates the parameters before DOS starts (some versions of Disk Manager, SpeedStor, Anydrive can do this).
Option 1 doesn't need a ROM, however it's a pain on a 286 or similar that doesn't have a custom drive type. Often used with generic MFM controllers.
Option 2 doesn't apply in this case. Often found on early XT controllers.
Option 3 is what it's currently using, and what the ROM program will continue to use - Often found on late XT controllers, and AT RLL and ESDI cards.
Option 4 is annoying because if you boot from floppy you can't read the hard drive, it's also possible to accidentally erase it since it's not hidden from the OS.
So for yours, it's ideal for Option 3 to keep working so you can slap it in to any ISA based machine and start up without any downsides, but to keep that you'll need to use the ROM program or do a non-desctructive LLF I mentioned earlier.
If you haven't seen the "debug" routine before, I did put up a video going through it for a WD controller using the magical "dynamic configuration" https://youtu.be/THWcWAttBns?t=1m58s
Video is terrible, need to redo it, but meh. You'll probably want to use an interleave of 1 if you do decide to do a full blank LLF (generally I use 1 on AT's, 3 on Turbo XT's, and 5 on proper XT's).