Gary, I have no idea what caused your kernel panic - I've only ever had one myself, and things righted themselves with a restart.
However, since you don't have much of anything loaded on the new G4, I'd wipe the drive, partition it (I keep 9 and X separate - and rarely use 9 these days) and install Jaguar, applying the updates from Apple to take you to 10.2.4. I don't know if AIM was the problem or not - I've never allowed it on my own machines. Pete has it on his G3 running 9.2.1, but he knows that if he puts it on either of my machines Mom will not be happy.
As for booting from your install disk - if that doesn't work, start up the G4 - hold down the option key and choose OS 9 (hoping that works!), insert the install disk and proceed from there - if I remember correctly, you'll be told to restart after you indicate that you want to install OS X. From there you should be able to use the Disk Utilities to wipe the drive, partition and install.