Wow, that is odd. Took maybe half an hour for me...
I haven't heard anything about installation taking that long. However, on the HD that originally came with my blue G3, things would take forever - any transfers over about 4K would grind to a halt, and it would take a couple of hours to write even a few dozen MB. I shipped the drive back to Apple, and they sent me out a new one.
Have you got access to another IDE drive that you could pop in the iMac for comparison?