Chameleon should boot from the USB-Stick and presents you this screen. I've enabled some debug output for. You can disable these debug outputs if you have successfully installed OS X and system is up and running.
Hit ENTER to boot the Mac OS X 10.6 Install DVD (restored to HD). You will see some debug messages from Chameleon.
Select the Partiton "Mac OS X" as install target. You can click on "Customize" to customize your OS X installation.
Once again in Chameleon. You will see two bootable Installation now. Select "Mac OS X" with the cursor keys (right/left) as show in the photo and hit ENTER.
If you have a working Internet connection, then OS X will check and download (in background) all available software updates. Go on and install all... it's safe to do ;-)