When you are booted from the OS 9 disk, have you tried opening up Drive Setup and Initialing the disk?

After that have you proceeded to tell the OS 9 installer to "Preform a clean installation of the System Folder"?

After that is all said and done, open up Stuffit and from one the menu's(can't remember which) did you tell it to find the file you are trying to unstuff? I've found that just double clicking on the file will cause it not to work(I'm guessing what you're describing may be it).