I have what seems to be a similar problem. When upgrading from MacOS X 10.1.5 (I think) on my G4 Cube (with 128 MB of RAM) to Panther, the installation process only got a couple of minutes into the second disc -- about to install iTunes -- when the message "There were errors installing the software" appeared.
Now my computer is in a very dysfunctional state. Basically, the Finder doesn't work. After start-up the Finder menu bar flashes on and off indefinitely. There is nothing on the desktop. Not even the hard drive icon. I can still access some applications through the dock. Safari is OK. System Preferences and Terminal are not -- they start but can't open any windows.
At first I assumed this was simply a case of a damaged second installation disc, so I borrowed a spare set of Panther CDs from a co-worker. But when I tried those, I got the exact same problem. "There were errors installing the software", at the same place. I also tried the first set of CDs on a different machine (an eMac), where the installation went fine. So the disc appears to be OK.
How do I solve this? I've considered going back to an earlier system, but judging from the previous messages in this thread, that doesn't seem to be an option. And I'd prefer not trying a "clean install", because if that doesn't work either, I will lose even the rudimentary functionality I have left now.