Hey cyberclub,
I've got a similiar/the same problem: I've installed Mac OS already, but when I want to start, I get (with any flag) a kernel panic. Something like this:

Panic (cpu 0 caller 0x0036DAC7):"Process 1 exec of /sbin/launchd failed, errno 88\n"@/volumes/disk1s2/leo_xnu-1228/bsd/kern/kern_exec.c:2884

And it's the same kernel panic as yours. So let's found a club, named "Panic (cpu 0 caller 0x0036DAC7):"Process 1 exec of /sbin/launchd failed, errno 88\n"@/volumes/disk1s2/leo_xnu-1228/bsd/kern/kern_exec.c:2884" and let's wait for Rev. 2 (or for help). ;-)

BTW: I've got similiar specs: AMD Athlon 64 3200, Nvidia Geforce 6600GT, 4x 512MB RAM, Epox Mainboard