What is going on with my CMD640 IDE controller?

It is broken. It cannot handle commands on both channels simultaneously.

There is a workaround available now and it is enabled automatically if your system uses this chip. For the details refer to the manual page of the disk driver (man 4 wd).

If you are already running FreeBSD 2.2.1 or 2.2.2 with a CMD640 IDE controller and you want to use the second channel, build a new kernel with options "CMD640" enabled. This is the default for 2.2.5 and later.