Here's the revised version of the procedure. Which adds Toast and fixes to my typos
1) Insert the FCP 3 CD (must be original CD)
2) Launch Disk Copy. Make sure to turn off the "verify checksum" and "check invalid checksum" options under preference
3) Go to Image > New Image from Device
Save the image file as CD/DVD master. Name it whatever you want. In this case I will name it "image.cdr.dmg"
3b) If you use Toast. Pick Disc Copy. Select the FCP disc and then save the entire disc as image file (Here just save it as "Final Cut Pro 3 Upgrade.image"). Also don't worry about verifications.
4) After the image is created with either Disk Copy or Toast. Launch Disk Copy again.....
Go to Image > Convert Image.
Then select that CD/DVD master image file ("image.cdr.dmg" for the image created with Disk Copy or "Final Cut Pro 3 Upgrade.image" if that was created with Toast) you just created.
This time save the new file as COMPRESSED.
Name it differently than the one you did in step 3 - this time I call this new file "FCP 3.dmg".
This new compress image will take a while to create because of the compression.
5) THIS is the most important note: Treat that image as a file. AS A FILE!
6) If you are using the built-in finder CD burning feature with the OS. Just pop in a blank CD into the burner and prepare it. Just drag that file "FCP 3.dmg" to the blank CD like what you always do to backup your music, files, etc. REMEBER NEVER BURN THAT IMAGE AS DISC....otherwise the CD will turn useless.
If you use Toast. Pick Data Disc as the option, choose MacOS Extended. Then drop that new compressed file (FCP 3.dmg) to the toast window then burn!
This time Toast and Disk Copy should not report errors even the verification options are on.
7) When the CD is burnt, put the disc back to the drive. Double click the image file (FCP 3.dmg) on that disc and let Disk Copy to mount the image. That mounted volume from that image file is now treated as the "original" final cut pro CD. Double click the installer from that mounted volume and viola!
For those using OS 9. U have to use Disk Copy 6.4 or Toast Titanium to mount that DMG image file
I have heard that Clone CD works but not everyone has access to the PC
so it's still better to provide a "mac" way