Can't update my early 2008 iMac OS

I wonder if the way you're trying to install it is a bit odd. Since you were on El Capitan, in all likelihood you had a Recovery partition stowed away in your system and could've restored from within. Oh well... Still it doesn't hurt to see if it wasn't wiped away: Press the "Command" and "R" key together right after the boot chime from turning on your mac and see if you boot into something...

If we need to proceed further, make sure you downloaded a good, valid El Capitan from Apple and not some other random place if possible (i.e. if you have access to an App Store from Snow Leopard 10.6 or above):

https://support.apple.com/en-us/HT206886

Get OS X El Capitan

Since you mentioned DMG file, I can only assume you found yourself having to go a different direction to find copy.

It's also possible you downloaded an Updater DMG not the full OS Installer itself. Do you know/recall what the file name is?

Next, regardless of whether you're working with the official Installer downloaded from the App Store, or a DMG of the full OS, you need to make sure you create a bootable disc from it. I would guess that an early 2008 can handle a Bootable USB drive, but a burned DVD will certainly work.

Before typing out a novel with further instructions--

Based on what I've outlined here, can you compare this to what you've done so far and please give more detail/specifics?

You need to upgrade it to 10.6.3 and then 10.6.8 first. If you don’t have a compatible Snow Leopard DVD, click here.

(159716)

You need to check Niel's answer - the OP cannot do anything until AFTER s/he has installed Snow Leopard.