Okay, lemme get this straight: First you clean installed OS 9, then installed the Harmoni software, then the Harmoni, then 10.3, right? I mean you wouldn't have installed the Harmoni knowing that your OS was already screwed up. So had you never run Panther until after the Harmoni install? Before the fresh install of OS 9, you were running Jaguar? You see, in that case we don't know if it was anything on your original system, such as a failing CD or hard drive, Panther incompatible RAM, or even a bad install CD, that was causing the kernel panic that you witnessed (those scrolling numbers) right after the Panther install.
Not to worry though. I'm guessing that your attempts to install a stable OS may have failed simply because the target volume was in need of repair. You can address this problem with Disk Utility and another clean install of Panther:
Open the CD tray, power down, insert OS X (close the tray!), restart holding down the C key until the CD loads, wait half of an eternity for the Installer to come up, then, from the pull down Installer menu in the Menu bar, choose Disk Utility, wait the other half. Now without having an open installer in front of me to refresh my memory, the rest of these directions may be a little imprecise, but you'll get the general idea, DU is pretty self explanatory. Select the OS X volume from that column on the left and then click Repair Disk from the box in the right.
If it finds no errors and says volume appears to be OK, then hit Repair Permissions. If no repairs have to be made there either (which_would_really _surprise_me), then it may be that your CPU or RAM is bad, in which case a fresh install of Panther is not going to help. (Though it is possible for DU not to catch some HD errors.)
If it finds errors but corrects them and finally says disk appears to be okay (green text), great. You can then do a Repair Permissions and restart (quickly ejecting the OS X CD before it can reload) to see if things work out; if they don't, you can come back to DU using the same method as before, and then initialize as described below.
If, on the other hand, you run Repair Disk and it finds but cannot correct errors (red text), you will want to initialize the disk immediately, creating a partition within the first 8 GB of the drive if its capacity is over 10 GB. Any volume then created should be formatted OS X Extended-- as I recall, you have to click on each volume's rectangle in the diagram on the left in order to bring up its options. Just make sure that you don't leave any rectangle grayed out before hitting Initialize. You can then do a clean, custom install of OS X.3, omitting all those languages and printer drivers you don't need. Do choose to install the BSD sub system (checked by default) and drivers for OS 9, if you want to be able to install Classic later; don't check for iTunes and such if you have a high speed internet connection and can download them easily online. The idea is you want to put as little tax on the CD and hard drives as possible during installation, save disk space, and avoid having the installer ask you to move on to CD 2 after it completes optimizing the first disk.
I think there may be a bug in the installer that asks you to load the second CD when it isn't really necessary; if it does do that, just ignore those instructions and force quit the installer-- I think you may have to stick a paper clip into the reset button to do this. If you haven't seen any errors reported during installation and are not experiencing any hardware problems, then when your iMac restarts it should open to the set up screen and you should be good to go. If it does go okay from there, and you want to have a copy of OS 9 on your drive as well, you can install it on the same volume as X (if you want to be able to boot from it.) If you get another kernel panic, or OS X just is not behaving right, then you probably have bad RAM or a bad processor. You can try replacing either until your iMac is running again.
Errors you see during installation could indicate, in addition to either of the aforementioned problems, a faulty install CD, CD drive or hard drive.
Of course, if you swap back your old processor and can install and run the OS of your choice, then you know the problem is with the Harmoni.
Hope this has been some help, and remember: even people who have received bad upgrades from Sonnet rave about their support!
Good luck, and say how you made out.