If the hard disk is larger than 8 GB, then you need to partition the HDD into at least 2 parts, You then have to select a destination partition for Mac OS X that is completely within the first 8 GB of the disk.

I used to have a Strawberry 333 MHZ iMac and I believe that the HDD is a standard IDE one. The biggest hard drive you can put in and have running without third party assistance is 128gb.

I hope that helped? Maybe you already knew that? I don't have my iMac anymore so I can't really help you with the rest of your question.