I think that there are multiple problems here, and most of them are not InstaDMG related:
1) InstaDMG at the moment requires you to be booted from 10.5 if you are installing 10.5. This is because of changes in the installer. I would like to see if I can relax this, but don’t have the time to fiddle with this at the moment, let alone do the testing to prove that it worked.
2) InstaDMG is for creating images that are going to go on a lot of computers. It sounds like you are only working on one, so it is really pointless to use InstaDMG. Just use the installer if you are only working on one computer.
3) There is a decent chance that your computer is not compatible with 10.5.anything if it came with 10.6. Every new computer has its own quirks in regards to graphics systems and cooling, and the OS that came with it is usually the first one to support that combination. In some cases you can get away with it, but I would have serious worries about performance and heat problems.
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