mac disk utility restore

ok here is what happened, I had a imac with intel core duo processor running mac 10.4 on it and i decided to upgrade it to 10.6. i had a disk image file in .dmg format that i was going to put into an external hard drive and then boot from the hard drive to install the new OS. So in disk utility i chose the restore tab, chose the leopard install DVD file (6GB) as my source and here comes the mistake, instead of choosing external hard drive, i chose the imac drive as the destination. Well, apparently, it wiped out everything and now when you boot up the computer, you have a grey screen telling you to restart the computer. I tried booting from 10.4 CD that came with it, but that's not happening either. I really appreciate any help that i can get on this because here is thing i am pc guy (I wish it was a pc problem). So after that happening, i took it to a apple store and they are telling me that hard drive had a hardware failure and quoted $230 for repair which makes no sense and sounds like a them trying to a make a buck on this

Thanks

Aug 22 update

so opened it up, connected my 2.5" SATA laptop harddrive to the imac, booted using the Tiger CD, got access to disk utility. Connected the original harddrive to the imac (using a SATA to USB) and reformatted it and vola. It was absolutely fine, so i put everything back in, installed the OS and will be upgrading it to snow leopard. Of course it sounds rather easy, but those who have done it know that peeling off all that tape and foil is not fun. So now about the apple people who told me that hard drive had hardware failure and would like me to give them $230, are not looking so nice. Because if i did this, with no knowledge of MAC products whatsoever, then all it shows is lack of proper dignosis and effort. Whelther they did because they were lazy or for the maximum profit, i don't know. I very well realise that Apple is great innovative company and this could have been isolated incident and not all stores opearte this way, but I feel bad for all these people walking in that strore who are not so tech savvy and need their products repaired and pay whatever money apple quotes them, even though the part could be fine.