I am running OS 8.1. I believe it is a CD but I will double check again because I do not have a DVD on the G3.
I put the CD in and turned the computer on. I pressed and held "C" - nothing. Then I did the same thing and pressed and held "D" - nothing, and then I tried holding "C" and "D" together and got nothing. Just the smiley-face computer.
Hold down the OPTION key when booting, it will give you a menu of bootable options. If the CD is not listed, there is A.) an issue with the CD or B.) something wrong with the cd-rom/ide controller.
When holding the option key - you do not have to hold down any other keys
This only works with G4's and later, AND OS X IIRC..........the OP is running 8.1, and besides that, when you boot from a CD, there are NO "options" per se, just the installer screen, read-me's, etc and a suedo-desktop environment
Thoneal.......
A) OS 8 NEVER came on dvd so no worries there.....but make sure you are holding down the "c" key before you push the power button and continue to hold it down until you get the boot screen, and make sure the caps lock key is off.......
B) Your harddrive may or may NOT be shot.....but since you can't boot from it, your OS is definitely fubarred 4 sure. However, your CD drive may be on the fritz, if it won't actually read/load the OS CD........did it work prior to this situation ?