Dead MacBook: Hardware or software problem?

My kids have a late-2007 MacBook with Leopard. Apparently one of them slammed it hard the other day. It worked fine for a while but then died. Doesn't sound like they were doing anything unusual when it stopped worked.

I get a chime and apple screen on startup, then it goes to grey. It has also gone to the blinking file folder with question mark and prohibitory sign at various times during trials. Tried safe boot. Doesn't work. Tried safe boot with the on-screen narrative of what's happening behind the scenes. It hangs up when it can't load the "mach_kernel."

Tried booting from the original DVDs. The drive fires up, but the result is the same: no booting. Tried using the DVDs and an external hard drive via firewire with Startup Manager. Got a smiling Mac logo and one arrow pointing up. Nothing else. Click on the arrow and both times we ended up at the same place: no booting.

Tried attaching another Mac (running Lion) and doing the target drive thing. No luck. Firewire logo came up on screen on the MacBook, but the host wouldn't see the target.

Took it apart to check from loose connections. Nothing there either.

So, my questions are:

Have I missed anything on the software side of things that I should try?

It seems like it must be hardware-related. Any advice on how to ID what piece of hardware is broken? If it's just a hard drive, that's a pretty cheap and easy fix. If it's the logic board or something else, given the age of the MacBook, it's probably a better idea to just trash it and get something new.

Thanks all!