Why does it say panic : we are hanging here...
It's just frozen. It responds to nothing.
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Do you have access to the original CD/DVD that came with your system? They are grey disks, if not do you have access to the retail version of Tiger or Leopard?
You'll need to start up your system using the CD/DVD to see whats happening with your HD. You may need to replace it or it just may need a re-install the OS.
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I see that this is old, but I've got the same problem, and I know what it's probably caused by. On these specific models, a common problem is a logic board failure at the connection to the airport card, which causes crashes. Then only solution is to remove the wifi card and use a usb dongle. Instructions found here: iBook G4 12" 1.33 GHz AirPort/Bluetooth Board Replacement
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