Starting in the fall of last year ('11) Apple no longer supplies an install DVD with any of the iMacs and laptops (systems with Lion).
What Apple has done is create a hidden partition on the hard disk to allow you to re-install the OS from the "Recovery HD Partition".
See Apple Support Doc: http://support.apple.com/kb/HT4649
As you can see you don't need to re-build the hidden partition if you don't want it!
So if you want to exchange out your HD with a bigger unit with these newer systems you have two ways: with or without the hidden partition.
See Apple Support Doc: http://support.apple.com/kb/DL1433 Lion "Recovery Disk Assistant"
To setup with the recovery partition and/or install the OS you need to have an external drive case to install the new drive temporarily. Hookup up the external with your iMac run the recover disk assistant program then setup the OS and transfer your files using the Apple installer program (accesses software via the hidden partition on your original HD). If you don't want the hidden partition just jump over that step.
To double check things are working select the external as the boot drive and restart. If it comes up you can then swap it out with the internal. Now your new drive has a recovery partition if you installed it, the OS and your current files. Any 6Mbps SATA drive will work (I just put a 2TB drive in my system).
I would recommend getting a USB thumb drive to install the recover files to that way you'll always have tools available if you reformat your older drive (loosing the original files).
Older iMacs don't have the hidden partition (like yours) so your only issue is installing the OS once thats done and you've transferred your files swapping out the drive is all thats needed. Granted your limited to the current OS from your system as your doing a direct copy Vs a fresh install. If you want a fresh install you'll need to put you hands on a copy of the Install OS CD/DVD's (Leopard or Snow Leopard) or use the Lion install DVD on top of your transferred OS
As you have found out the older iMacs have the 3Gbps SATA bus not the newer 6Gbps SATA bus and needed to jumper down the drive.