You cannot do an install of OS 9 on a machine running any less than 8.6 (8.5, maybe) as I recall. Mostly because the Finder itself in System/OS 7.x is so different that it is not capable of handling the install functions required by the installer.
So, essentially, you need to boot from your OS 9.1 CD to install. If you still get an error, it may be because of your RAM. I believe OS 9 requires 32MBs as a minium, or, it may be your available disk space. I know for a fact that 9.2.2 requires well over 250MBs of disk space, but the 9.2.1 and 9.2.2 updates are so large in size that they make 9.2.2 about 2x the size of OS 9.1.
So, to recap:
1) Boot from your CD.
2) Make sure you have enough RAM.
3) Make sure you have enough disk space.
Good luck.