More testing needed
My advice is that you need to do more testing to find out what the problem is. The reason I say this is that I have jumped to conclusions in the past about the source of a problem in a computer, then tried to fix that problem unsuccessfully, only to find out later that the problem was something different.
You say that your new hard drive didn't fix the problem. I recommend that you try out both the old and new hard drives in another computer that is known to be working fine. If you don't have access to another Mac for this, you can use a PC, although you might have to reformat the hard drives to fully test them.
Also, you can boot your iMac from the install disk, and use the Apple Hardware Test included on the disk. That might give you more information. To boot into the Hardware Test, you hold down the Option key and restart with the disk in the drive. You then see a screen where you can choose which operating system to start from. The Hardware Test should be one option. That's how it works on my iMac G5 with a Tiger install disk, anyway. I don't think Apple usually changes basic things like that.
Another way to get some information is to boot in verbose mode. To do this, hold down the Apple + V keys and start the computer. This will show you a black screen with lines of white writing as the operating system loads. If the operating system does not load fully, then look at the last few lines of writing before it stalls. If your operating system does boot fully, then you can also see all this information in a log, using the Console application, which is found in the Applications -> Utilities folder. In Console, you can click the "All Messages" heading in the sidebar on the left to see everything that has been logged recently.
I hope this helps a little.
