24" iMac breaking my heart

Question

I have really been through the mill the last couple of weeks.
I installed 10.6.8 from Software Update, at which point my wi fi network just collapsed.  Had major weird issues trying even to work with my time capsule wired to either my iMac or MBP.  So Apple said, we'll send you a new TC. 
New TC arrives, and when I go to start the process of setting it up, my iMac has a picture of a giant Hard Drive against a black screen.  I thought it was some kind of funky screen saver, but it became apparent that it was a pretty catastrophic crash.
Called Apple support and they talked me through doing a complete restore from my TC - you know, the one that isn't working very well.  Six hours later, iMac appears to be working ok, but I have a corrupted iPhoto library (thankfully the picture and video files are in there, just no database file).  So Apple suggests restoring an older backup of my iPhoto library (again, from the wonky old TC).  So I start this process, and it estimates 96 hours.  I'm thinking, it'll revise that.  But no, it really is moving that slow.  After about 40 odd hours, the restore finally quit - again, no usable library. 
At this stage, I'm freaking out, because my old TC has to be returned to Apple or they will charge me for the replacement, but I am now super reluctant to part with my only backups.  I use disk utility to archive my old TC backups to a separated HD.  I copy my picture and video files to another HD.  So I'm thinking at least I have my children's baby pictures.
I basically start from scratch with iPhoto and import my photos from my old iPhoto library.  New TC is slowly backing everything up.  Finally does this.  Next stop: kernel panic.  Get the thing running from a 10.6 disk, Apple advises an archive install, which fails twice.  So I erase the hard drive, reinstall, then use migration assistant to bring in my data.  Next thing - it freezes.  I hard reboot, it takes approximately 40 minutes to restart - even from the 10.6 disk.  I'm on the phone with Apple through this 40 minute drama and they keep saying, as long as the computer sees the hard drive, the hard drive is probably fine.  It eventually starts up, bunch of permission repairs, etc. It appears to work normally for about 30 hours, turning it on and off, restarting normally.  I do another TM backup (had to erase my only active backup because the fresh install wouldn't recognize the old backup).  Did a few more backups on TC - imported a few pictures from my phone (didn't delete from my phone) - bought an album on iTunes and did a TM backup, just to be sure it was picking up new files.
Thank god, that backup completed, because this morning, I can see the computer froze about an hour after I went to bed.  Had to hard reboot, and I'm getting the big file with a "?"  I've tried resetting the PRAM, leaving it unplugged, booting in safe mode and trying to boot from the 10.6 disk.  I either get the "?" or it just ejects the DVD.  I am fairly sure the HDD is gone.  But I'm really terrified of calling Apple again, because they are going to try messing around for another several hours of hard drive erasing reinstalling, etc.  At what point can you be reasonably sure you've got a hardware problem?  I would think not being able to boot from a DVD is probably a pretty safe sign? I have spent HOURS on the phone over the last two weeks.  It has ruined my time off work - my kids hate me. 
All through this the SMART status has never reported anything, but is that completely reliable?
Has anyone been through anything similar? Has anyone ever recovered data from an archived TM backup?

Answer 1

Good news: my data is safe!
The iMac: remains to be seen.  It's waiting in the iMac hospital - the quick look they took suggests bad logic or RAM.  I assume I should be hoping it's RAM as it looks like logic boards are not cheap.
I really don't want to have to buy a new computer, but I don't want to pour a ton of money into it.  For starters, I really can't afford it.  And I don't really feel any huge desire to upgrade - this computer is perfect for our needs.  I don't particularly desire a 27" monitor, and I wouldn't want to get a smaller one.
What would be the major distinction between the behavior of a computer with bad RAM versus a dying/dead logic board?
I had a lot of system freezes, one kernel panic, a few very s l o w startups and finally, as above, it wouldn't boot from anything.  They really struggled to get it to boot from anything yesterday - they had a few different external drives hooked up to it.