From the Castaway help file:
Install any disk images you want; they must end in 3 characters and be no more than 8 characters in the main filename. They should not end in .IMG unless they are TOS ROM images.
It is recommended you use .STT for your disk image filenames. Most disks you will find are .ST or .MSA. The .MSA files are already fine since they end with 3 characters, but you'll need to rename the .ST ones. Changing them to .STT or .FOO or .STZ or whatever you want is fine.)
.ZIP's of .MSA or .ST are fine to use, though you won't be able to look them up in the game database unless they are unzipped!