I cooked up an 'NDRV' from Tiger( 10.4.0 ), it had the same issue with my VGA display( Grey screen after system boot changed the screen res )
Connecting to DVI to HDMI let me boot, and everything was detected correctly, monitor, proper screen res., Vram, but changing the screen res or bit depth resulted in a proper screen res, but had the grey screen issue with an active mouse.
However I just remembered I hacked the Mac OS ROM for the built in display of the iBook, so I'll try and redownload the ROM and see if that changes anything.
Otherwise we're going to have to hope that 10.3.x has a compatible 'NDRV' or anything else ( 2D/3D ) will be a non-starter.
I was really hoping this was going to work, as OS 9 is useless to me without 2D/3D acell.
No great loss, I have a Dual 1Ghz Quicksilver with a Radeon 9000 that works just fine with OS 9.
I also get the type 2 error with ELN's latest Rom, but USB works, disabling the extension did nothing.
As it is, the system is just far to unstable, sometimes it boots, sometimes the ASP and Finder fail and I can't use the System, because I have no input until ASP loads.
These Mini's are turning out to be more trouble than they are worth for OS 9 booting, I'll give it another go, but if I can't figure way the system is hanging, I'm just going to run X on it.