Hold down the main mouse button as you restart and the CD will eject.
That's a kernel panic you're seeing. I just had the same situation happen to one of the machines I was working on. Unfortunately, I can't remember what I did to fix it. I work on too many machines, and I lose track sometimes. I'll keep thinking about it, though. Hopefully someone will answer before me.
A good start would be to zap your PRAM, by holding down Apple, Option, P, and R all at once when the computer is restarting. Let it chime 3 time before letting up on the keys.
I don't believe that your drive is lost. Make sure that you don't have any peripherals connected. RAM has been known to cause kernel panics, and I saw a support doc that said AirPort cards were causing panics as well.
Do a search at Apple for Kernel Panics, I didn't see anything specific on this forum, but try Macintouch.com.
Which version of OS X are you installing?
Here's a few of the links from Apple..
(How to log Kernel Panics)
(What is a Kernel Panic?)
(Your Mac won't start up in Mac OS X)
Sorry, I got a little long-winded.
I recently attempted a clean wipe and install on my iMac G3. I left the OS X CD to do its thing for a while and came back to see the "You must hold down the reset key to restart your computer" popup. So I attempt the install again and am mystified to discover that the main hard disk is no longer on the list of places to install OSX; infact I think that the install got far enough that the disk was wiped of the old OS but has not yet recieved the new one so I can only boot from disk, yet I can't install! Any help would be great, also: is there a easy way to force a disk out of the drive on a iMac? THNX