Put in Leopard Disk 1.
If the OS doesnt recognize the disc, then that's your problem right there.
After inserting the disc you should see an icon on your desktop for the disc. If you DON'T get that, then something is wrong with either your disc or your drive.
Once you've got the window for the Disc open, click on "Only install additional programs" or whatever it says. it will do some work and then ask for disc 2. put in disc 2 and it will finish.
and then you will have iLife on snow leopard, just like I do. Yes, I did the exact same install procedure myself.