Your problem is very unusual, since OS 9 doesn't really use "permissions". Thanks for giving that info, and you did right to search the discussions.
The closest equivanent to "permissions" is the ability to "lock" files or if a file is "busy". LimeDude knows OS 9 best, but I think you can search for "Locked" files using some of Sherlock's custom search features. You can unlock files using the Get Info command.

Another idea--You might want to look at your control panel "Extensions Manager" and see if you can turn off unecessary extensions. One of them might be causing the folder to be "busy." Virus prevention software often causes installation problems for many programs.

Lastly, have you ever gotten LW to install?