2006 iMac - Trouble with Mac OS X Reinstall

This has been a project a few months in the making now, but some time ago my Late 2006 Intel Core 2 Duo iMac died. It had another one of those fatal black rounded-square errors that requires a restart and every reboot after that would yield a "dong!" then the Apple logo, then a radial animation and then it would shut off.

I tried to get into the diagnostic tools which worked! So, I figured I would just do a fresh install (completely erase HD as well) since it was certainly getting on it years. Upon doing so, (mulitple, multiple) times, I managed to download the OS and reach about halfway completion--sometimes even actually 100%--yet a dialog would come up saying that "Mac OS X could not be installed." I should probably fetch the error message but sometimes it can take hours just to get to that point...

I have tried to install previous versions of the OS (10.6, 10.5, even the factory-shippped 104) all with their corresponding install disks with the same result. I even tried to make a bootable external HDD by installing OS X Lion or Snow Leopard from our other 2009 iMac running Mountain Lion, but there doesn't seem to be a way to install older versions of the OS from newer ones even if they are on a different partition.

Any thoughts on this? The 2009 iMac is my parents' and I would love to still be able to use my 2006 iMac while I wait for the Haswell rMBPs--and I have a real soft spot for it since it was my first mac... So any feedback would be awesome, even if you're having this issue too and you want to follow the thread.

Thanks!