Q: How do I do a factory reset of Macbook 1.1 w/OSX 10.6

Click here and follow the instructions. When you reach step 5, insert a compatible Mac OS X install DVD, restart with the C or Option key held down, use the Disk Utility to erase the internal drive, and install a fresh OS.

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No. Phone Apple and order replacement original disks, or buy a Mac OS X 10.6 DVD from the online Apple Store; the Snow Leopard disk won’t contain iLife or the Apple Hardware Test.

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With that MacBook model, the maximum OS is Snow Leopard 10.6.8.  If it could ran a more recent version of OS X, you could start up from the hidden Recovery HD partition, and do a erase on the main partition, then reinstall a fresh system.  But for Snow Leopard, that needs to be done by starting up from an installation disc.