I moved this question to the SheepShaver forum
You need the old world rom to install anything below MacOS 8.5 on SheepShaver, so you can stick with that.
Then, what cd rom do you have to install from? Is it known-to-work cd or copy? Is it an universal install disk?
In 64 bit windows, you can't use real cd roms, as the driver doesn't work. So you have to use an image of the disk. You made an image. With what program?
You can download a floppy disk image and try to boot from that, just to make sure everything else is working. Download from here: and add it in your volumes list http://emaculation.com/sheepshaver/DiskTools85_PPC.img
(at the top)
Can you paste the contents of your sheepshaver_prefs file in your reply?