my IT department is in the process of upgrading my powerbook from my school years to a working/travelling computer for business use.

it has a 500mhz processor, 12G hard drive and 2 - 128 RAM for a total of 256. this product was purchased from mac warehouse and contacted them specifically to confirm the possiblities of upgrading. i was told that i could put 512 RAM in each slot contrary to the 256 i have always heard. i was also told that i could install OS X.3 with no problems.

ok, first the IT dept. installed the new RAM thinking it would help speed up the installation. this all went great and the computer acknowledged the upgrade in the profiler. so things were looking good.

then, they started the installation of OS X.3. the first disc went well but then the second disc w/ the special features would not install. we researched that and determined it did not like the "third party RAM". so, we took that out and the second disc seemed to be working until we realized that the computer is no longer recognizing the keyboard. trying to work around this we connected and external, which worked. but now the computer keeps freezing up during the second disc and even when booting w/o a disc in OS X.

you may ask, why don't we just get a G4 titanium that is already upgraded, well we thought this would be cheaper, not necessarily easier. my question now is - is any of this is even possible?

In theory, everything you were told is correct. Surprised you didn't opt to upgrade the hard drive too. If you bought a new laptop drive and an external (firewire) enclosure for it, you could install panther(10.3) on it (use another mac if you can) and then put the drive in the powerbook.
If you have no other macs to use, and you bought panther from mac warehouse as well the other stuff, get the new hard drive from them too and ask them to install panther on it before they send it. (Can't see they'd mind since they're advice caused you so much bother.

If this sounds like too much bother/risk. Try a clean install of 10.2 (or whichever older OS disc you have) and then have another go. Failing that, boot off the panther disc and erase your HD with disk utility.Then try and install it.
Might try resetting the PRAM (button on the back I think) before you try again.

Nice "theory" they had. I just went through getting mine to take OS X3 .5. NIGHTMARE!
I finally got it on there using the Pbook internal 20gig 500+ram, works OK.
I had to install dic 1, "custom", JUST THE ESSENTIAL SYSTEM STUFF, no fonts or anything else ffrom disc one. The screen greyed out, blued out, I could hear the CDR still working , so, I decided to wait it out with a bizzarre blued sorta screen, and restart when it stopped making nooise, VOILA, OSX3!
Then, disc one, BSD, tada, then disc one optional installs, whoopie, then fonts yaknow, everything one at a time, then disc two, programs, then the other stuff, then wireless, and software update the rest, (3 more intall sessions) and it's done.
IT'S AN ALL DAY AFFAIR!

Nice "theory" they had. I just went through getting mine to take OS X3 .5. NIGHTMARE!
I finally got it on there using the Pbook internal 20gig 500+ram, works OK.
I had to install dic 1, "custom", JUST THE ESSENTIAL SYSTEM STUFF, no fonts or anything else ffrom disc one. The screen greyed out, blued out, I could hear the CDR still working , so, I decided to wait it out with a bizzarre blued sorta screen, and restart when it stopped making nooise, VOILA, OSX3!
Then, disc one, BSD, tada, then disc one optional installs, whoopie, then fonts yaknow, everything one at a time, then disc two, programs, then the other stuff, then wireless, and software update the rest, (3 more intall sessions) and it's done.
IT'S AN ALL DAY AFFAIR!