I think you've nailed it down pretty well as being the hard drive.
Given the complexity of accessing the hard drive on these models, I'd really recommend you take it somewhere. Looking at Apple's service manual, you have to remove the LCD panel to get at the hard drive. If you don't know what you're doing, you might end up causing even more damage to the system. I guess the alternatives would be to just run it off an external from now on, or buy a new one.
My daughter's 2006 intel IMac has problems. Last night, it had frozen, and was playing a strange sound. When I forced a shut down, on restart the strange sound came again, and the folder and question mark icon - showing that the start-up drive is missing - came up. Pressing Alt to try to select start-up wouldn't work.
This morning I managed to start up from an external firewire drive, intending to tinker with the drive in disk utility. However, disk utility won't find the drive. What it does find is a mystery 7.5 GB drive (hard drive icon) called WDC ROM MODEL-HAWK----Media. Disk Utility won't let me verify, repair or erase this mystery drive. The 'missing' hard drive is 250GB.
Drive Genius, Onyx and Idefrag don't 'see' either the proper hard drive or the mystery Hawk drive either.
I've done my best to record the weird sound. This sound starts up immediately I press the power on button which seems weird. Then the 'normal' start-up chime sounds, but the weird sound continues and the iMac fails to find the usual start-up drive. I've uploaded the sound (not good quality I'm afraid) here:
The chime comes in a little loud - sorry.
Has the hard drive died, do you think?
Thanks for any help