Wont boot - "Still waiting for root device"

Booted into recovery mode. Used terminal to set up internet connection. Also used terminal to backup important docs to another machine. Quit terminal to get back to main recovery mode options. Tried to do a "reinstall mac osx" got response "could not find installation information on this machine. Contact applecare". Well thanks a bunch, I don't have an applecare plan. This 2009 iMac Lion did not come with any install disk. So I opened Disk Utility and attempted to restore from a "base system.dmg" on the Recovery HD. Did that, rebooted and (false hope) normal login screen came up with users listed. Logged in as admin user, and (fasle hope dashed) up comes the Recover Mode options ....

Am I screwed? How can I reinstall Lion?

OK, just tried that (hold D key while powering up). Get a blank grey screen for about a minute before the same old grey screen with no-entry sign and spinning wheel takes over

So then tried rebooting with Option-D held (internet based version). Initially got a rotating earth globe icon with my WiFi selected beneath following a message about internet based recovery. However after a minute or so the globe stops spinning and has a superimposed warning triangle sign (triangle with ! mark) with the words "apple.com/support" and "-2002D".

They couldn't make this stuff anymore cryptic if it was deliberate.

Yes, I've done that. I used the disk utility to "repair disk" (no reported problems) and "repair disk permissions" (a few permissions changes were detected and done).

OK well I might have debugged why the internet hardware test and internet restore function didn't work. Basically my firewall-gateway setup expects the iMac to have a specific IP address and DNS settings that were not being set up (I guess because it wasn't booting normally and doing the normal network config - seems plausible). So in recovery mode (CMD+R on bootup) you can open a terminal and use commands such as ipconfig and networksetup to get your ip address, default gateway, DNS etc set up. Its too late to continue now, so I'll have a go tomorrow and report back.

I'm trying a different method now. I've lugged the desktop to another room where I'm able to plug into an ethernet port of my firewall that has a seperate LAN with DHCP. The OSX Lion internet-based reinstall is now running (downloading). >2 hrs to go on my broadband connection! Fingers crossed. If only apple would give out some basic information such as what ports/protocols/services it needs access to in order to remotely update your machine I could have configured that on the proxy. As it stands the guideline (http://support.apple.com/kb/HT4718) just indicates that Recovery does not work if your machine is behind a proxy! Why can't apple let us download an install image to USB?

Well - major suckage ensues. Download took about 3 hrs. Then the iMac auto-restarted and now faced with this message: "INSTALL FAILED .... Mac OS X could not be installed on your computer.... Mac OS X can't be installed on the disk Mac OS X Base System because a recovery system can't be created. Visit www.apple.com/support/no-recovery to learn more. Click restart to return to you previous version of Mac OS X".

And the afore-mentioned web page is a class act from the school of chocolate teapots.

Is there any other way I can do this? E.g. download OS X Lion (or even Mountain Lion) and install via another mac computer or external disk etc??