The intuition message is popping up due to the dialog box that appears regarding the unit 0 not being found on the buddah... This happens when IPrefs is trying to change the screen mode and there's a window or dialog box open.
So is there a cdrom drive? What's this memory issue you have? How much ram is there supposed to be? How much fast ram and chip ram is free according to the workbench menu (when booting from floppy workbench disk)?