After nfoav8or asked me if running SPDisplaysReporter.spreporter causes a KP (and it did), I replaced with the old 10.5.5 version 104 (10.5.6 has version 116), and that stopped the kernel panic.

Here's my new dilemma. DMG files won't mount and causes KPs, and my USB drives won't mount. Tried using the 10.5.5 seatbelt.kext method with no success (build 14 as opposed to the new 10.5.6 seatbelt.kext build), and I'm using the same 9.5.0 System.kext in accordance with the Voodoo Kernel 9.5.0 I'm using. My iPod and flash drives that uses USB ports won't mount, tried using the old IOUSBFamily.kext and IOUSBMassStorageClass.kext from 10.5.5. Still no luck.

Any help to point me in the right direction is greatly appreciated.

Well, I got frustrated on figuring out how to upgrade to 10.5.6, I decided to use PCWiz's iPC OSX86 Final ISO to install fresh. I use all the patches available, and used the Migration Assistant to transfer all my files and applications from the old HDD to the new HDD.

As of now, its working fine, all issues beforehand have been addressed (USB, DMG panics, video issues etc.). Here's hoping it is.

Thanks to everyone who helped.

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Mac OS X Leopard 10.6.2
Intel Core i5 650 3.20 GHz (Threads: 4 Cache: 4MB Socket 1156)
ASUS P7P55D-LE
Seagate 80 GB SATA 7200rpm HDD (OS Drive)
Seagate 320 GB SATA 7200rpm HDD (Data Drive)
Built-in Via VT1828S HD Audio 8 channel
Built-in Ethernet
Palit Nvidia GeForce GT 240 512MB 128bit HDMI PCIE
2GB Kingston DDR3 RAM 1333
Monitor: Viewsonic VG1930wm 19" Widescreen
Lite-On DVD-R/RW IDE Drive