This sounds like a failed HD, however you haven't completed your profile so we have no idea what iMac or version of OSX is installed. If you can, please run Apple Hardware Test at least 3x in Extended Mode, if it reports errors take it to your local Apple Store or AASP for a HD replacement. If you have been backing up this will be an inconvenience because you will be able to pick up where you left off after restoring from your backup. If you have not been backing up, that's a whole new problem.
You can find instructions for AHD at:
If you cannot run AHD because you cannot find your original media then call Apple and for a nominal cost they will replace the DVDs. You can also read http://support.apple.com/kb/TS2570 for some trouble shooting steps too.
Good luck and please post back.