Several Questions.
Did you update the iMac's firmware before installing OS X? You have to do the update using OS 9. See
http://docs.info.apple.com/article.html?artnum=86117
Why are you using X10.1? This is an out-of-date operating system. You should probably use Panther, 10.3.9. Was the 10.1 install CD that you were using a universal/retail CD, or one from another model Mac?
How much RAM do you have? The OS X specs say 256MB min, but you really need at least 512MB.
Cheers, Tom