Here's what I did:
First get the emergency boot disk working. I just ran the "create emergency disk" option in the install script, then deleted the Amiga OS ROM Update file that is on the floppy. When you boot from the floppy disk, leave the CD-ROM in the drive, since it will need to access that. One problem I remember using the Emergency Boot disk was with the resolution. You will need to either have a monitor hooked up to your cd32, or find a way to change the default resolution, since a TV display does not support it.
Boot from the emergency disk and partition your harddisk. Workbench doesn't need a whole lot of space, I kept mine around 200megs. After that (i think this procedure differs depending on which release of OS3.9 you have), go into the Workbench3.5 directory on your OS3.9 cd and copy all the contents over to your workbench drive. Next, install OS3.9 over this.
The most annoying problem I had with OS3.9 on the CD32 was that I would get a "packet type unknown" error when doing a drag'n'drop with files. The problem is with the default cd.device, yet there is a replacement on the Aminet somewhere that will fix this.