Insert the DVD and reboot holding down the option key on the keyboard
as soon as you hear the chime. After a moment, the DVD should appear
on the screen. You should be able to select it and boot from it.
If that works, then you should find yourself a USB-to-SATA adapter. If the drive
is a 3.5" drive, the adapter will need powering capability as USB ports cannot provide
sufficient power.
The other option is to find an enclosure that supports Firewire800 and put the drive
in it. This is preferred to USB as it will be faster that your USB2.0 ports.
Once you do either of the above, connect it to the iMac and Reboot via the
DVD as stated initially. Select Disk Utility and partition the drive in a GUID format.
After that, install OS X to that drive.
If you cannot boot from the DVD as stated, then you iMac is likely borked and
you will need to either repair it or replace it.