Here's how I'd get around the OP's problem:
1. Get an external hard drive (USB2 or USB3)
2. Install a clean copy of the OS onto the EXTERNAL drive (NOT onto the internal one).
3. See if that copy will boot, if it does, set it up with a new account
4. Download CarbonCopyCloner (CCC is FREE to download and use for 30 days)
5. Open Disk Utility and ERASE the internal drive to MacOS extended with journaling enabled.
6. Run DU's "repair disk" function on the new drive, just to make sure it gives "a good report".
7. Open CCC and clone the (newly-created) external drive to the INTERNAL drive.
8. When done, go to startup disk and select internal drive to become the boot drive
9. Power down and disconnect the external drive
10. Press power-on button and see what happens next (hopefully, a "good boot").
OP:
Do you know that if you can't boot and run the old iMac from the internal drive, you can still boot and run it from an EXTERNAL drive? It may boot a little slower, but once booted and into the finder, things will go ok.
The Mac doesn't particularly care from which drive it boots. Internal, external, no matter. All it wants to find is a good, bootable copy of the OS to run.