The tape return business has nothing to do with the 1/8" out. I pondered that same point in Spargey's truck but it's clarified n the manual. The 1/8" out is sweet, just tape it secure. I used my new all right angles 1/8" > 2 RCA cable MP-2 > SBM-1 at Primus. Too bad that tape sucks - no fault of the gear, that's for sure.
From having run your MP-2 once and knowing the basic behavior of your minidisc, and the low-ass output of the mic, I'd say start the MP-2 at 12 o clock and adjust the Sharp from there. Sharp MD line inputs are slightly more than twice as sensitive as Sony portables so that should give you some room to play.
Thank goodness you got the knobs tightened, because friggin fine-tuning the MP-2 at our shows is not a good idea! I ran the MP-2 at 9 o clock, the SBM at about 6 for hot levels at Primus (average perceived loudness) using the MIC out of my MPS-6010. With the 908, I'm thinking 12, then play with the MD. I know you had big problems running the 908 LINE IN on the Sharp... the MP-2 gain stage should solve it. Don't be shy, I think. Maybe even more than 12 o clock...