[Delta Music Belgium]

I have never known about any hardware incompatibility between an AM III and the G4 architecture, I have serviced all of the different types of G4's (PCI/AGP/DA/Quicksilver/MDD) with an AM III (and/or PT III/PT24/PT24 MIX) in the past, so I'm certain it should work. In the compato doc's on the Digidesign website you can also read your G4 1.25 GHz is supported (see here)

I'm 99,9% sure your problem is a software problem, you use a HD from your B/W G3 as a start-up disk for a G4 with all the preferences, etc... for your B/W G3 present. When you do that, once your G4 did launch you should trash at least the DAE preferences + your Digisetup (very important) and do a restart. The DSI should do a search for your AM III and maybe it will be selectable again.

Btw, when you install PCI cards in a G4 it is always a good idea to zap the PRAM afterwards, maybe this can help too, especially if there is a SCSI accelerator card involved