OS X 10.3 Panther install iBook G3

I am working on an iBook Blueberry which has a 6GB HD partitioned into two drive with 1.47GB and 1.81 GB available. The current OS's are 9.2.2 and 10.1, so it hasn't been updated in a while! I've just added 512MB of RAM for a total of 576MB. I have the disks for OS X 10.3 panther, and plan to try an install (first ever for me) tomorrow. I've read the Mac beginners info and the old archives under OS X forum to get some advice on the install. The only applications I really want to retain (that I know of) are MS Word, Excel and Powerpoint (for my wife) but not really any OS 9 stuff. It looks like I should maybe do an archive and install, but I wanted to check with people on the forum (I am beginner MAC convert). I did see where OS 9 takes up about 300-400MB, so some old posts thought it was good to keep, but I think that may be too much overhead for such a limited machine. When I do the install, can I set myself up as admin and make a keychain password then? I don't have a firm understanding of the keychain usage. I did use a 10.1 install disk to reset passwords, but then noticed that some old applications/files had a red minus sign over them. I'm guessing this has something to do with permissions, but not sure. Any help is appreciated.