For some years there has been talk of using 3.5″ floppy drives instead of the original 5.25″ drives with the Atari 8-bit line. It is not a fantasy, in fact it has been an accomplished fact for years. Essentially take an original XF551 case and motherboard, use an adapter for both the internal data and power cables, pop in a compatible BIOS, use a 5.25 to 3.5″ drive tray converter and put the cover back on. Presto!
You want it in a 1050 case? Here you go!
There’s even been some attempts at a special pcb for a 3.5″ drive using XF551 derived circuitry. Though the enclosure was none existent. Review of Polish 3.5″ 8bit floppy design
Now I am able to offer a somewhat different approach. With the assistance of tf_hh and manterola from AtariAge.com I have developed an Atari SF314/SF354 ST case compatible version of the XF551 circuitry with builtin 3.5″ floppy drive support. It is a bare board pcb only, but I will be offering both a BOM and assembly instructions. Further details can be found here