Boot to the USB drive then start Disk Utility. Can you see the internal drive from there? If not, it sounds like you have a failed drive and need a new one. A bad internal cable can also cause this, but that is less common.
If I use the USB and go to disk utility it only shows my external drive. If I boot without the USB and go to disk utility through internet recovery mode it only shows SuperDrive, disk0 and Mac OS X base system.
I have been looking all over the internet about what could possibly be wrong with it. After reading a couple of posts and repeatedly seeing things about failed hard drive or something about SATA cables I figured that might be what was wrong, but I just wanted to make sure before I go out and buy a new hard drive or cable or take it to the Apple Store a