I had a similar problem with my iMac G4. I'd only had it two weeks when OS X stopped working. It would boot, and I'd be presented with the backdrop picture and a mouse pointer and nothing else.
I tried to boot from an OS X install CD, and it would not even recognise the CD inserted in the drive. I thought maybe the CD was damaged, so I bought a new copy of OS X. Still it wouldn't recognise the CD (on the screen where you can choose which drive to boot from, only the Hard drive was visible).
After maybe 10 calls to Apple Support (who were pretty clueless) they sent a guy to collect it and it was back with me the day after, with a note saying they'd replaced the hard drive.
Apparently the broken hard drive had also stopped the Mac from noticing there was a CD inserted.
So what use are disk repair tools that boot from CD if you can't boot from CD because your hard disk is faulty.
