Overall, there are generally not huge problems using another mac to install the OS on to a target mode drive (same as installing to an external drive). The install will work fine and an OS will be present on the drive, but the areas where this will fail are:
- Using a restore DVD on a mac that is a different model (retail OS discs have all drivers for macs requiring a lower build number than the retail disk - restore media have a very specific model's drivers only)
- If the build level is incorrect, the mac may or may not boot properly - and some drivers needed for the mac that eventually runs the OS might not get installed.
- If the installer selects the wrong drivers due to the machine running the install being different than the mac that eventually runs the OS - you may have some problems.
Basically, when a new hardware model is released (new thunderbolt, new logic board design, new battery technology in a portable) - that change is introduced into a separate OS build. I have never seen a public listing of these specifics broken down by model number, but over time these special builds generally get merged into the "main" OS.
Since retail OS DVD change versions maybe once or twice a year, there is a window of time where installing the OS from a machine of type A and running that OS on a machine of type B will have issues due to needed drivers being missing from the retail OS DVD. This chance is much larger if you are using the newest macs and installing across product lines (MacPro to Air / iMac to MacBook).
In practice, the core OS usually works and you can boot the mac and most of the hardware will work. Also, usually you can download the latest combo update and hope that it pushes updated drivers when it is run, but there is no guarantee that installing the OS on one mac will work for all other macs across the board.
People that run large installations and clone one image on to dozens or hundreds of different macs can attest to the ways this breaks certain hardware from time to time. Recently, iMacs wouldn't show a wifi card or produce sound when running an OS installed from anything but those new iMacs.
For older hardware - doing the install and running the OS - the chance of total success is very high. Stack the odds in your favor by ensuring the retail DVD you use has a build number higher than the minimum build for the model you have.
For 100% success, just make sure the mac doing the install is the same as the mac running the OS and use the DVD that came with the mac.
Seeking clarification
Please add to the opening question a note of whether the panic occurs during:
a) the preparation stage of installation (before the first automated restart of the system)
or
b) post-preparation, the installation stage (between the first and second automated restarts).
Logging the preparation and installation stages of installation
Screenshots at http://www.wuala.com/grahamperrin/public/2011/08/01/a/?mode=gallery demonstrate the Installer Log window in foreground whilst Mac OS X Installer runs — the installation stage.
During either stage (preparation or installation) you can present a log window by keying:
With luck, you might see — possibly greyed-out beneath the foreground detail of the panic — the point at which panic occurs.
At the root of the volume to which installation is attempted: if installation fails you may find a directory:
Mac OS X Install Data
Within that directory, a log. If present, that log may be informative to you, but not as useful (to readers here) as the .panic file.
PRAM, kernel panic information and the .panic file
Apple's Mac OS X: What's stored in PRAM tells us that recent kernel panic information is stored in PRAM. If the first normal start following a panic does not present the customary dialogue, you should wonder whether/how that information was lost from PRAM.
If the kernel panic occurs during the installation stage — and if the subsequent start defaults to attempt continuation of the installation, or Mac OS X Utilities (not a normal start) — and if you are without an obvious interface to kernel panic information — then my hunch would be that whilst started in that special mode, the path to which a .panic file might normally be written is read-only …
… if that's the case and if you're comfortable at the command line, maybe start in single user mode following the panic then use the following command to see whether panic information is legible on screen:
nvram -p
(For the number of ifs above, apologies!)
Best Answer
You should be fine installing that way. The OS X installer is pretty flexible, and is designed to be able to install on external drives (which is essentially what a Mac in Target Disk Mode is). With the exception of the system disks included with Macs prior to Lion, which were machine-specific, OS X installs work on any Mac the OS supports. You can even boot a Mac from a different system's drive without issue, as long as it's not a version prior to that Mac's release.