First off…
Do you have the Leopard Mac set up to use non-Time Machine drives? That is the first step.
Second, make sure there are no odd characters and/or spaces in the network name AND hard drive name of the Mac (keep it simple).
Third, the DMG needs to be a sparsebundle that is able to expand. When you create it set the capacity to be equivalent to the hard drive you are backing up.
If the Mac has more than one volume you are backing up, you need to create more than one DMG.
Next, and this is one of the important bits, you need to have an underscore and the MAC address of your primary Ethernet connection in the DMG filename AFTER the HD name.
Lets's break this down for a minute.
I have a G5 Quad on my home network named Youngren14. Here is the DMG filename for the TM backup I have stored on my G3 Server: Youngren14_001451650544.sparsebundle. Those digits are the E0 (Ethernet) MAC address for my primary Ethernet connection (I have two).
Lastly, the name of the disk that should appear when the DMG is mounted should be "Backup of X," where 'X' is the name of the drive being backed up.
With my previous example then, when I backup Youngren14 the drive that appears on my desktop is "Backup of Youngren14" (without the quotes). Note that when you make the first TM backup over a network to an Apple shared drive this is exactly the naming conventions that the system itself will use. But over certain shares (including Windows shares) the system often fails to create the DMG so you get an error.
Unless you have a small drive or a fast wireless or ethernet network I would suggest you do the first backup to this DMG via some method that allows you to mount the DMG from another connected Mac. For instance, putting the DMG on one Mac and then using that Mac in TDM (Target Disk Mode) to your other Mac will allow you to make that first backup quickly. Or as an external drive. Once done, you can move the DMG to the server and then redirect the Mac to that share for the TM backup.
If that isn't possible then you still want to set things up exactly as I describe above and then prevent the Mac making the backup from sleeping until it's done.
One final note…once you have the share mounted to your desktop, the DMG mounted and the backup going off as you expect, you can eject the share (not the DMG mounted disk). That way you never see the share mount, only the DMG.
Hope that helps.