IRIX 5.3 will kernel panic when booting the miniroot if you have not yet set up an ethernet address. Remember: As far as the emulated machine is concern, it's being powered on with an uninitialized Dallas.
What you need to do is, from a command monitor, type:
setenv -f eaddr 08:00:69:12:34:56
In order to initialize the ethernet address. At that point, the IRIX 5.3 installer will run perfectly fine. I would know - all of the screenshots above are from an install done on the emulated machine, not dd'd from an actual machine.
As for ISO CD images, they don't need to be run through CHDMAN in the first place. You can simply attach them directly using the -cdrom command-line option. Again, I know this because this is what I've been doing.