Is the PERC H700 controller compatible with a Poweredge 1950 / 1950 III

ESXi on fully supported hardware from any of the major vendors will generate RAID controller alerts visible in the VI CLient. Since the H700 on the HCL I'd be very surprised if it didn't provide alerts, the older PERC6 cards definitely do, sometimes to the point of being annoying. It would be nice if VMware (or anyone else) would provide a definitive list of what level of fault reporting their built in hardware health monitoring can actually provide for each device but that's not something I've ever been able to find.

This would be a lot easier to figure out if ESXi supported SNMP but it doesn't unfortunately, you have to use WBEM\CIM which is not quite as easy to enable and interact with. The Nagios\Python script referenced in my answer to this related question might give you some better information if you can get it working.

Dell have a reasonably useful document here on the various steps you can take to enable more advanced monitoring through the Open Manage Server Administrator agent on ESX & ESXi V4\4.1 that you can work through if you want to fully enable remote monitoring on your ESXi hosts. Even with this you are limited to CIM\WBEM and SNMP traps, SNMP queries don't work on ESXi.

Sounds like it's gone slightly nuts and is getting one config from the good drives and another slightly out of sync or invalid config from the "faulty" drive.

First thing I would do is just remove the faulty drive and try booting up then. If that doesn't work, then try with one of your other 2850's.