Just thought I'd post this result, it might save someone else some work. This approach worked for me, all data now restored (user accounts, apps etc).
1. Install new WD10EZEX 1TB disk in iMAC 2007
2. Insert OS X Snow Leopard 10.6.3 retail CD and start iMAC, press "C" to boot from CD
3. In Disk Utilities, select the new HD and journal format, proceed to install OS X 10.6.3 from CD to the new HD
4. iMAX reboots to complete the install, and then prompts for first time setup (country, keyboard layout).
5. Choose the option to take the Time Machine Backup to migrate/create all old user accounts, apps, data. iMAC finds my Time Machine Backup drive and files on the LAN and starts the restore of the data - took about 6 hours.
6. When complete, reboot, checked admin login and all accounts were ok, then started Software Update. My iMAC was running 10.6.8 before the original HD died, but once the updates were complete I was able to access all apps, data etc.
1. Always backup with Time Machine
2. Keep your original install disks/retail OS X disks handy
3. Set a non-default admin password on WD MyBookLive NAS
I'm going to give myself 10 points for solving the problem, but thanks to all the others who post solutions on this forum as I was able to get what I needed.