My iMac G3 has developed an issue where I can no longer see any icons on the desktop or access the HD.

Imac G3 shows no icons on desktop including the hard drive icon Ican only open applications from the dock but then it crashes if I try to open files (for instance word documents) I can see the files are still on the hard drive and Preview will allow me to open some photos. I cannot access the Finder either and the only way to switch off the mac is to open system preferences or any other application which will then allow me to access the options to shut down or restart.
Does any one have any ideas or experience of this problem?
I've tried restoring the Hard Disk using the original installation disk (Starting up from the Disk and pressing c) but could not restore disk.

You have some sort of issue with the external drive, I would use a powered USB hub first if it's not self powered.
Next I would be looking at purchasing software to direct recover your files from the 1's and 0's of the bits themselves on the external drive as it appears your directory or something is hosed.
Software that comes to mind is DataRescue $99 which you can download and test first before buying, then send the recovered files to another blank external drive.
Once you've got your files recovered, then your all set to mess around and experiment.
Try to access the files with the program version that originally created them, I'm not all that up to speed on iMovie, but I do know there are issues with using older Apple software versions with newer version altered files.

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