Usually when you see that message is because the metadata for the file isn't set correctly; this is typical if you're looking at MacOS Classic files that are not on a HFS filesystem.
Brief Information on Classic MacOS Filesystems
Unlike Windows or UNIX or most other operating systems that I've used over the years, MacOS tends to pack quite a bit of data ...
You need to delete the Apple Audio Extension.
Open your Mac OS 9 HD.
Go to System Folder
Go to Extensions
Move Apple Audio Extension into Trash and empty your trash.
Open Sound Panel.
It looks like the Classilla folder opened OK and that you're opening a document which you don't have the original app which created it. Try opening an editor or wordprocessing app and then open the file from within that app. If it opens and looks like garbage data, try opening it in a hex editor instead.
The message “Not enough room on OS9 to install” suggests that it's not a memory problem, but an (emulated) disk space problem. The installation image you downloaded is labelled OS9, which is a clue.
Classic Mac OSs can be a bit precious about where they install software, so maybe Kid Pix is trying to install on a small installation image. Can you enlarge ...
When it says, you've not enough memory, it is referring to RAM. For all of my virtual machines, I set the RAM to half of what is actually on my computer. I have a computer with 4GB of RAM. Even when I'm emulating Windows 3.1 and Tiny Core Linux, I use 2GB RAM for good measure. I suggest that if you use a computer for such, it should have at least 1GB of RAM.
Are you using Basilisk II? If so, it should be included in SheepShaver.
Download cdenable.sys from one of the SheepShaver links here. Then copy the file from the CD-ROM Drivers directory to ..WINDOWS\system32\drivers.
Actually, from that article it looks like this driver is only supported on 32-bit versions of Windows.
On 64-bit versions of ...