The following assumes you are going to keep the files and applications that are presently on the iMac and not do an erase and install. If you plan on the latter, you will start fresh anyway and no troubleshooting is necessary.
The keychain password is the same as the login password when the OS is originally installed. If the login password is changed in the Accounts pref pane, the keychain password will also change with it unless it has been manually changed to something else.
However, in your case you changed the login password from the CD so the keychain password remains the old one. There is no way short of getting the son to divulge the password to regain the use of that keychain. So the best thing to do is to delete it.
• Navigate to /Applications/Utilities/Keychian Access and open it
• Go to Edit menu at the top of your screen and from the pull-down menu select Keychain List.
• In the resulting window, locate and click to select the keychains you are currently unable to access.
• Go to File and delete keychain (note that you will be given the option of deleting the files and references: if you delete only the references you can later get the use of the keychain back if you recover the password)
• Go to File and create new keychain OR restart your machine and login. A new login keychain should be created which will respond to your login password
As to the external drive it should be OK, note that you can either select the external DVD from the Startup Disk pane or use the Option key on startup to choose the external. I also see that you have a PB and if it has a DVD drive you can connect the iMac to your PB and install via Firewire Target mode from the PB.
In any case if you run into trouble, another choice would be to create a disc image of the install DVD on the iMac and use that to boot to but it may only allow you to upgrade via Archive and Install rather than doing an erase and install since you would be booted from the drive to which you want install the OS. If you aren't planning that anyway it wouldn't matter.
But if they are burning Tiger CD's (lucky you) there shouldn't be any problem just booting to those to install from the iMac. BTW, those Tiger CD's are like gold these days. They are selling for $150- $200.

Question: Why is she getting both Panther and Tiger?