iBook - boots straight to open firmware...

Broken HD shouldn't really make it boot into OF unless it's something more serious.

Type "reset-all" at the prompt (it will restart) and see if that does anything.

Hmmm, a failed hard drive should not result in a boot to open firmware. It should result in you getting a gray screen with a flashing folder / question mark in the center.

When you reset the PRAM, did you do it with Cmd-Opt-P-R, or did you do the following commands in OF:

set-defaults
reset-nvram
reset-all

I wonder if for some reason OF doesn't have a defined boot device?

Also can you boot an install CD/DVD?

For the three commands that I gave, you really should do them in order, as listed (all three). As far as I know, that's fairly exhaustive. But I'm not sure it's the issue anyway.

This blog post describes something fairly similar that was fixed by simply booting from the install disc and then selecting the HD as the boot device.

Mmm...that doesn't sound good at all... you tried some different ways to try to make the restore disc boot, right (holding c, holding option, etc)?

The thing that strikes me as odd is that even if the ATA controller went down (I got to experience this in essence first hand, with my iMac, although the iMac has a SATA controller for the HD and a separate ATA controller for the DVD-RW -- and only my SATA died), you should get a graphical boot response and not open firmware.

Well, if I can remember why your issue sounds vaguely familiar and re-google whatever I read that might've applied, I will let you know. In the meantime, good luck!