What good is a fresh install on the iMac going to do?
Sometimes pre-existing user data on the new computer can make the Migration Assistant hit a snag (same user name, for instance).
That said, I do see your point about how a reinstall is useless if the Target Disk functionality is broken on the PowerMac (I didn't know it had to be working for Migration Assistant... I thought it was just used for booting).
Of course it is a PowerMac, so it is simple enough to take out the drive put it in a dirt cheap USB/FW case.
This does seem to be the most logical thing to do at the moment. A decent case can be had for $30 or less on Amazon or Newegg. Make sure it's for an ATA drive, though.