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Be sure when you are using the open firmware option you are following the steps of this article:
http://docs.info.apple.com/article.html?artnum=106752
If that does not work, the disk may truly be stuck and need to be removed by a service technician who knows the machine.
Also when you tried to insert the installation disk, was it the iBook installation disk? An iMac's installation disk won't work on an iBook. If your seller did not give you the disks labelled iBook, you should ask them to either give you the disks, call AppleCare if they lost the disks, or accept your returning the machine for a refund. Selling the machine without the proper disks is not advisable as my
FAQ on selling (x) explains.
(x) Links to my pages may give me compensation.