I found a solution that worked beautifully after many days of messing around, this was also on an iMac 8.1 with 1gb RAM and found that to be safe I would install Leopard first before upgrading to Snow Leopard. If you have a later model that came with Snow Leopard installed originally I suggest you do the same to be safe.
I posted this on ubuntuforums:
"I know this thread is a bit old but after days of struggling to clean install OSX on a Mac after a disk erase I have a solution!!!
If you do it this way you can directly install from a partition on the same drive or even just boot the installer from that partition to use disk utils and create a USB installer\DVD installer or external HD installer.
Firstly install ubuntu on the mac (or an external HD) and find a dmg install OS X DVD image that matches the original OS installed on that hardware when purchased.
Make sure when you install Ubuntu that you leave free unpartitioned space to create a couple of partitions later.
The big issue with these images is that they actually contain multiple partitions of different filesystems so if you just convert to img and then try to mount it or convert to ISO and mount it will only mount the bootcamp installer partition but I found a link which I'll post that has the work around.
You'll need to install packages dmg2img, gparted, hfsplus, hfsprogs & hfsutils.
Create an 8GB HFS+ and another bigger HFS+ partition that you plan to install OS X on (so 30gb+), as mentioned in the link below and follow those instructions carefully.
Use Linux to install OSX from a DMG extracted to a partition - without a Mac DVD
After so much struggling, this was the only way that worked, and it's pretty straight forward. Was able to do it and install OS X within half an hour or so and the install was very fast because it was on the same HD.
Best of luck to anybody who's had this hassle, it works great as long as you get a proper dmg of an install DVD.