I had a nightmare with my iMac G4 once. One minute it's working fine, the next it just stopped working. I mean, OSX would boot up and just sit there on a blank desktop with no icons, no menus, no nothing. You could move the mouse pointer around and that's it.
I decided to try and reinstall OSX. However, it also refused to boot from CD/DVD - holding the C key didn't work, and the Superdrive didn't even show up in the boot menu. I guessed maybe my OSX DVD was damaged or something so I went to the Apple Centre and spent £100 on a new copy of Jaguar. Arrived home, and it was exactly the same!
After 2 days of calling Apple tech support, and typing commands in a shell, I was no further forward so I opened the mac up with a screwdriver and pulled the HD out. It STILL wouldn't boot from CD. By now I was cursing Apple and wishing I'd bought a PC (actually I could have bought 2 high spec PC's with the £1500 i spent on the Mac).
I eventually sent it off to Apple for repair, and it arrived back 3 days later with a note saying the HDD had been faulty! This still doesn't explain why it point blank refused to boot from CD/DVD even with the HDD pulled out.