I Love my Mac. Photoshop and Freehand, to name just two, peform way more smoothly, plus there's the bonus of receiving virus-laden emails that are rendered completely useless! Not to mention (as I must have said a million times) if installing Windows (any flavour) was as easy as Installing the Mac OS, I would have entire days of my life back by now.
Anyway, don't worry about ATM, it's fairly notorious for causing problems, and unless you want to use the iMac for serious desktop publishing (which I'm assuming you're not) it's mostly unnecessary.
Somebody should have an old copy of OS 8.6 (very stable) lying around somewhere if you want to start from scratch , that would be a good starting point.
Hope all goes well, I'd love to see you get this working!