At a complete loss. Worried data is gone for good. Trying to fix disk by booting Disk Utility from installation DVD but disk ejects. Help!

Hello Comunity,
I'm at a complete loss and I hope you could help me.
The machine I have is I believe an early 2006 iMac model. (Model identifier 4,1 if I recall correctly).
Awhile ago I installed Snow Leopard on the machine but have since begun encountering serious problems (but I think it's due to the hardware and it's age rather than the software, Snow Leo was running smoothly) and now the computer won't start - I'm faced with a grey screen and a flashing folder with a question mark on it. I tried booting using the various key combinations and as I understood it, my last resort at fixing it myself would be using Disk Utility on the installation DVD.
This is what happens:
I boot the computer, insert the disk, press down and hold C (also tried Option). I hear the computer trying to read the disk, but after a considerable aount of time holding down the key and a grey screen, the disk ejects and the flashing folder returns.
Could anyone offer an insight or advice?
At this point I'm not even that interested in fixing the machine, but there are some extremely valuable files that I need to recover (the machine gave out just days before I got my extrenal HDD to back them up).
I'm worried about taking the machine down to the Genius Bar - I'm a completely self-supporting student and I imagine the recovery cost would be huge (if anyone could provide any information on the potential cost of the repair and/or recovery that would help).

One thing to try without needing the install disk: reboot holding down cmd-S. It should reboot to a black screen and text prompt. Type the following, with spacing exactly as shown, hit the return key after each line:
mount -uw /
fsck -fy
Then type
reboot
and see if that helps.
Do you have any other Macs in the household (or cna use a friend's) that you can try connecting to it with a Firewire cable? If so, reboot the iMac holding down T, you should see a large Firewire symbol moving across the screen. Connecting to another Mac with a FW cable will show you the iMac's hard drive mounted to the other Mac's desktop.
You can also try Diskwarrior, which fixes drive filestructure problems. It's around $100.
Professional data recovery cost would depend on a) whether the hard drive is actually at fault, b) if it's physically damaged or just has a filestructure problem. A physically damaged drive can go into the thousands of dollars for data recovery; a drive with filestructure issues usually costs a lot less to recover files.
Matt

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