Flashing Folder

Hi All,

Looking for some advise as I hit a wall.

My wife's imac took a nose dive last week. First it froze and had to turn off, when it started back up I had the flashing folder with the !. Joys. I started up a few times and I could hear the drive trying to be mounted. A light tap and she started up and was running fine (Here was a great moment to do a back up. FAIL) 2 Days later the same again but this time no start up.

After trying the usual, I resigned myself that it was hard drive problem so went out and brought a new one, which I stalled, with no problem.

The 'dead; drive I put into an external hard drive case and hooked it up to my iMAc, every thing there, no problem mounting. (At least we had all the files and had lost anything)

I still have the flashing folder on my wife's machine when I try to boot up normally on the new drive (Yes, its formatted). And if I hold down the Option key and select to boot from the original drive, that is now on external hard drive , it just hangs on the apple screen with grey spinning wheel.

So, has any one got any thoughts on what the problem could be.

Thanks in advance,

Phil