Diagnostic LED burnt out and no power up

Inherited an a1224 iMac from the neighbors. They were throwing it out because it wouldnt turn on. I rescued it from the dump trip!

First thing i did was plug it in and power it up and away it went, working fine. The only thing out of the ordinary i noticed when was using it was that the mouse seemed a little jumpy/glitchy but nothing majorly bad (could be a clue to the problem). Then when i turned it off, it wouldnt start again and hasnt since. I get completely nothing, no green light on CAPS lock button, nothing. I ran normal checks, reset PRAM and then decided i had to open it. I opened it and found no diagnostic LEDs are on at all with power in and on. Checked power to the PSU and its getting 240Vac to the circiut board- must be a blown power supply.

Bought a power supply off ebay and they said they checked it in a computer and it was working. Plugged it in and still no diagnostic LEDs. Checked power into PSU again, OK. Then i got the pinouts diagram for checking the PSU pinouts and checked them - all ok except pin 4 which is for the temp of the PSU i believe the link is here

iMac Intel 20" EMC 2210 Power Supply Output Voltage Test

So pin 4 has Ov but all the rest are ok - could this be the whole problem now?

Now here is where it gets funky - after not believing that the new PSU was faulty, i checked the voltage across the diagnostic LEDs and found that there is 3.3v across LED #1! So now im thinking that somehow that LED has blown or not working or whatever. No power across LED #2 though. When i put in old PSU and checked voltages, i found that they were all over the place and defenity wrong. With the screen off, when i try to start it the fans move just that little bit but thats all that happens. From checking the voltages on the PSU, i can see that the PSU "thinks" that the computer is turned on because it turns on all its 12v feeds, and when i reset the computer it turns them off. If i hold the power button down for 10 seconds and then unplug it and wait another ten seconds and then plug it back in again still holding the button down then the next time i push it, two of the three fans come on full and thats it. If i reset it like this and then push the power button again then same thing- fans come on full. I have to unplug it and reset it to get it out of this mode.

Anyone got any ideas? im at a dead end here.

One more thing is i woke up this morning and realised i could hear the optical drive going. I left it pluged in overnight and it must have been turned on or whatever not that there is any way to tell.