Can't Restore from Time Machine (won't find destination disk)

So my imac was working fine and then today i turn it on and it wont boot up into OSX instead it takes me to the OSX utilities splash screen. From there i try and repair the disc via disk utility but it keeps saying it can't repair the disc.

So i then erased the drive and decided to restore via one of my time machine backups. My problem is when i get to the "select a destination" page it just says "scanning for disks" forever and never finds the imacs hard drive !

The drive is formatted to osx journaled so it should appear, im getting a bit worried.

I would try reinstalling mountain lion from an install disk but i purchased it on the apple store as an installer.dmg and dont' have it on disk !

Im starting to get pretty worried ! I can't understand why it just says "searching for disks" forever even though disc utility clearly shows the disk exists !

Any help would be appreciated

Cheers