I know this is dated, but I just ran into this with my wife's machine and wanted to post the details on how I fixed it.
I did try both homemade disks and factory disks in the machine with the same error result. I also tried the last upgrade disk I had created and used.... All three had the same Disk not accepted' error. This error appears very quickly after inserting a disk and touching the disk button. This told me either all of the disks were bad (unlikely), there was a missing driver or software plugin in the machine itself, or the physical disk drive itself ( or it's cable) was bad. It my case it turned out a more accurate description would have been 'disk drive not accepted' or 'disk drive not found'......
I was able to download a service manual for free with a simple google search. It had instructions on how to remove the covers and a layout of the main circuit board with it's connectors. Remember this is a computer so treat the components the same as you would if you opened your home P.C. to add memory or other basic hardware task.....ESD can harm computers!
I opened up the case simply to inspect the cable to the drive and make sure the disk drive cable connector was tight..... I found the cable out of the connector! The machine had been in to service at Joann's for a motherboard replacement and general service a year ago... We had not tested the embroidery when it came back, only the sewing machine itself, so we had not caught it early.
the connector is not the same as your home P.C. It is a flat ribbon cable and does not have a permanent slide on end. The outside edges of connector on the board itself slide up about 1/16" of an inch (use a small plastic screwdriver or similar). You need to slide the edges of the black connector up so the end of the ribbon cable can slide in, then you insert the ribbon all the way, then slide the edges of the connector back down to securely hold the end of the cable. It applies a slight pinching motion to hold the cable in place.
Be patient, work in a clean, well lit environment, be careful of all the other cables and connectors. If you are bot comfortable with the task then ask someone who is comfortable working on their home P.C. to help.
It seems like you can just slip the ribbon in without moving e edges of the black connector, and that is probably what the service technician did, but the cable will not stay in place. If you are lucky it will stay on when you close the machine covers up, but don't count on it..... You need to secure the connector properly.
as soon as I did this the machine immediately started to recognize the disks and accept the programs.
Problem solved.... The most difficult part was figuring out how to open the case. Even though the instructions are detailed and accurate the case is plastic and can break, so be careful.