Is there any clue to what has happened...
I'm fairly certain it was pre-existing Disk Corruption.
Whew, no MBA experience here, but...
See if any of these key combos work...
Does it boot into Open Firmware with CMD
Option+of ?
http://docs.info.apple.com/article.html?artnum=42642
reset-nvram (press Enter)
set-defaults (press Enter)
reset-all (press Enter)
Have you done a PRAM reset...
http://docs.info.apple.com/article.html?artnum=2238
Might try fsck...
To use fsck, you must run it from the command line. Unlike using your mouse to open an application to do something, you'll need to type a text command at the prompt (#) to tell fsck what to do. The Terminal application (/Applications/Utilities) and single-user mode are two examples of command-line interfaces in which you can type such commands. To use fsck:
1. Start up your computer in single-user mode to reach the command line. Hold CMD+s keys down at bootup.
Note: If necessary, perform a forced restart as described in the Emergency Troubleshooting Handbook that came with your computer. On desktop computers, you can do this by pressing the reset/interrupt button (if there is one) or holding down the power button for several seconds. On portable computers, simultaneously press the Command-Control-power keys. If your portable computer doesn't restart with this method, you may need to reset the Power Manager.
2. At the command-line prompt, type /sbin/fsck -fy
3. Press Return. fsck will go through five "phases" and then return information about your disk's use and fragmentation. Once it finishes, it'll display this message if no issue is found:

The volume (name
ofvolume) appears to be OK 

If fsck found issues and has altered, repaired, or fixed anything, it will display this message:

*** FILE SYSTEM WAS MODIFIED
*** 

Important: If this message appears, repeat the fsck command you typed in step 2 until fsck tells you that your volume appears to be OK (first-pass repairs may uncover additional issues, so this is a normal thing to do).
4. When fsck reports that your volume is OK, type reboot at the prompt and then press Return.
http://docs.info.apple.com/article.html?artnum=106214
Do you have another Mac?
