There is no physical risk of damage from installing software, especially branded Apple software that will check thouroughly before updating firmware on any component.
I am disgusted that an Apple-store employee could be so thick.
If you tell us which model iMac you're using, we can give you a rough idea of how it will perform under 10.2. You will probably take a hit as far as performance goes as OS 9 is a lot less demanding of the system, but for the extra functionality and stability it should be worth it, depending on what you use your computer for.
Remember that you will have to upgrade or replace many of your software packages if you do upgrade the machine, and consider this before you take out your wallet.
As always, the best idea is to ask around the board and do your research.