2007 MacBook, Problem Loading The OS X Disc

Hello all, I am fairly new to using Macs so I am hoping this issue is just a simple resolve for most of you...
A few weeks ago my MacBook froze up while I was on the internet (fantasy football draft to be exact). The colorful spinning wheel came up so I figured it would work itself out and be fine. After 20 minutes of this I decided to just power the MacBook down using the power button. So I did that and when I went to restart it, it wouldn't load past the grey Apple screen with the circular loading graphic. So I mildly freaked out upon seeing this and after not being able to find any help that was working decided to take matters in to my own hands...which was a mistake.
Ultimately that isn't the issue I'm facing now so I'll just go through the bones of what I did. Basically I turned the MyMac part of the hard drive in to the Mac OSX disc (stupid yes I know). I took it to apple care but they would not look at it since it was too old, but the guy thought it was the hard drive. I didn't think this to be true because the CPU still verified the hard drive being intact.
So I took it to a local computer repair place where the guy confirmed that it wasn't an issue with the hard drive but that I had made it so that when the computer goes to boot, it tries to from the OS X cd, even if it isn't in the drive. He said he could fix it for $150 and that he had to just basically re set up the OS. I decided against paying that much to do it because I figured I could find the steps online.
After some searching I was able to find how to delete that partition on the hard drive. And I have done so and now the computer boots up to the Mac OS X utility page instead of the CD.
The issue I am facing now is that when I put the CD into the drive, it acts as though its gonna load but then the MacBook just shuts down, black screen and all. I have tried loading it by holding down C, and also by selecting it after holding down Option, but it just does the same thing. I had loaded the disc before any of this happened so I don't believe it is an issue with the actual CD.
This is driving me nuts because I feel like I am pretty close to getting this thing back and up and running, but this bump stands in the way. One of the weird things to me is that when it loads the Mac OS X Utility, it gives me the option to install Mountain Lion, which is not what I had or use...but when I click it, it says it needs to be connected to the internet.
I know this was a pretty long winded post, so I apologize in advance for that. I just desperately hoping someone on here can assist me or direct me to where there is a post involving the same problem ( I could not find one). Thanks in advance people!!

Sorry, what I meant was that where it says "Mac OS X Install DVD" is where it's suppose to be the "MyMac" part. And when I first made the mistake of switching it, the computer would boot up as if the install DVD was in it, even when it wasnt. So when I say that I erased it, I mean I deleted that part, in hopes of making it not boot as the DVD. And now it doesnt, but only boots to Mac OS X Utilities.
I have the Mac OS X Snow Leopard Version 10.6.3 DVD for it.
When I click on the "disk1" it looks like this, I clicked each of the options also to show...
And when I click on the main Hard Drive thing on the Utility screen, this is what comes up under the partition which has me mildly concerned...
i apologize for them being upide down, thats just how it put them in there

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