Ooops--type 2 in OS 9 means a memory problem (search for the handy "Apple Error Codes '98" in Google or LW).

If the latest version of stuffit won't open a reliable .sit (like one of the small LW Classic installers) without giving you a type 2 error, then it's a good indication that it's time for some basic hard disk maintenance.

If you have virtual memory turned on (or off) in your OS 9 Memory Control Panel, then you are probably running out of disk space. Freeing up some disk space helps the automatic virtual memory on OSX too.

Which system are you booted into?

Shutting down for 10 minutes clears RAM memory, and is a good time to do a safe boot in OSX and repair permissions too.