We can fix number 1 by simply getting more RAM. I find Craigslist to be of great use here. Number two is a bit more difficult as G4 processor upgrades are ridiculously expensive once you consider the cost of a Mac Mini, and also requires a bit of tech savvy under the hood as you’d be swapping CPUs.
Not to worry, though. Here’s a way to convince OpenFirmware that your CPU is 867mhz, and allow the installer to boot, install, and get you off and running:
Boot into Open Firmware, I have covered this extensively here:
Once in OpenFirmware, issue the following commands (for single CPU):
dev /cpus/PowerPC,G4@0
d# 867000000 encode-int " clock-frequency" property
boot cd:,\\:tbxi
For dual CPU:
dev /cpus/PowerPC,G4@0
d# 867000000 encode-int " clock-frequency" property
dev /cpus/PowerPC,G4@1
d# 867000000 encode-int " clock-frequency" property
boot cd:,\\:tbxi
Note that all we are doing is over-writing the CPU clock-frequency (speed) property for each CPU installed, at boot time.
Also, if you need to boot another device, try:
printenv boot-device
This will return a list of boot devices to use when booting the installer. I used this in order to boot a Firewire device that had had a disc image (DMG) restored to it, making things a bit easy and faster.

Good luck!