Some points to see if i can help.
Linux boots like this: lilo or grub knows where to find the linux kernel image, and it loads it. Those are the messages that start with Ok, booting thekernel or smthg like that and end, in your case, with "kernel panic". At the point the kernel panic happens, the linux kernel is trying to (a) mount your root filesystem and (b) executing a program called "init" that would start all other programs in a normal situation. So, it looks like you do have a filesystem where the linux kernel image is (its usually in /boot, so you probably have a good filesystem in /boot ) but the kernel cannot mount the root filesystem (/dev/hda7)
So, the first kernel panic message (with ext2) says that it is unable to mount the root fs. Maybe because its broken or maybe because the kernel is trying to mount the wrong one (highly improbable if you are installing - it may happen when you play with your kernel and make a mistake). The second kernel panic says "try to pass init=option" because you can pass options to the kernel, and you could tell where init is (its usually in /sbin/init , but the kernel will look for it there so you need not do anything).
This is all I can do for you. If I were you, I would download those one or two diskette linux distributions, boot my pc with those and try to mount the filesystems by hand (see man mount, but the syntax is "mount /dev/hda8 /mnt" where /dev/hda8 is whatever partition you want and maybe you will have to create /mnt whith mkdir /mnt).
Accept this little help, and dont dispair =)