I dismantled the computer (stupid case design making it necessary to rip out all cards to get to screws that hold in CD drive!) and swapped out the CD... as an added bonus, I found a 32X SCSI CD drive in my closet, as opposed to the 12X in there when I got the computer. The OS now could see the DiskSalv CDROM. I copied the files to DH1: (which isnt giving errors) and ran the Install script, installing DiskSalv to DH1:DiskSalv. Its running now, doing a Validate on DH0: and on like the third pass (Hash Check) it found an error, on one of the Aqua files in DH0:tmp/ which is where I expected the error would show up. When running DiskSalv before from CD, it never found any errors.
I cant say 100% for sure the CD drive I had was the problem, but it seems a good candidate. Now I just need to wait a year or two for DiskSalv to finish running and fix the errors. Hopefully it doesn't guru out again haha.