Answer to: What's the yellow film?Chances are you are referring to the Kapton tape. Its a heat resistant material used as the base for flex circuit boards, flex connectors, or just to hold parts down (in places heat may be an issue). Though the heat may be during assembly of the device, its not necessarily heat generated from running it.
Answer to: Why won't it recognize the Hard Drive?You'll probably need a new hard drive for it. Especially if the install floppy cant find the HD. Your best bet would be to scour eBay for a replacement. Also, if you've ever done any sort of hardware repair on a computer, you shouldn't have any problems replacing it. Those old macs were meant to be serviced.