I have used following steps to install MacOS 8.6 on SheepShaver on. Move it to a read-only disk image and have classic boot from that,.

General information

What is SheepShaver?

SheepShaver is a MacOS run-time environment for BeOS and Linux that allows you to run classic MacOS applications inside the BeOS/Linux multitasking environment. This means that both BeOS/Linux and MacOS applications can run at the same time (usually in a window on the BeOS/Linux desktop) and data can be exchanged between them. If you are using a PowerPC-based system, applications will run at native speed (i.e. with no emulation involved). There is also a built-in PowerPC emulator for non-PowerPC systems.

SheepShaver is distributed under the terms of the GNU General Public License (GPL). However, you still need a copy of MacOS and a PowerMac ROM image to use SheepShaver. If you're planning to run SheepShaver on a PowerMac, you probably already have these two items.

Supported systems

SheepShaver runs with varying degree of functionality on the following systems:

• Unix with X11 (Linux i386/x86_64/ppc, NetBSD 2.x, FreeBSD 3.x)
• Mac OS X (PowerPC and Intel)
• Windows NT/2000/XP
• BeOS R4/R5 (PowerPC)

Some of SheepShaver's features

• Runs MacOS 7.5.2 thru 9.0.4. MacOS X as a guest is not supported.
• Color video display
• CD quality sound output
• Access to floppy disks, CD-ROMs and HFS(+) partitions on hard disks
• Easy file exchange with the host OS via a 'Host Directory Tree' icon on the Mac desktop
• Internet and LAN networking via Ethernet
• Serial drivers
• SCSI Manager (old-style) emulation

I know we had a similar thing on the server, but it seems to be missing.

1st DL: Hardly touched boot image for BasiliskII, SheepShaver and MiniVMacII.
(Note that SheepShaver will need a 4MB OldWorld ROM to boot into 7.6.1 or lower - the ROM is hosted on GS12´s awesome site: http://www.redundantrobot.com/#/sheepshaver )
MiniVMac (Mac Plus) does not boot from this volumes, except for the last DL.

Installer files were taken from http://www.info.apple.com/support/oldersoftwarelist.html when the site was still online. Gone like some other sites, but there are backups on the net.
Installation was done for 'Every Macintosh'.
The image was checked with NAV and should be good to go.

2nd DL: Japanese 7.5.3 made from the .smi hosted here: http://macintoshgarden.org/apps/kanjitalk753

3rd DL: 7.5.3 Spanish, the .dsk includes the installer image.

4th DL: is a bootable French localized volume with installer.

5th DL: is a bootable image for MiniVmac, ROM and App for OSX.

See also Mac OS 7.5.3 + extras page for more international Mac OS disk images, machine-specific installers, and CD-ROM images.