I need to clean erase/install before selling

I have a flat-panel iMac that I'm selling to neighbors for their daughter's use. First, tell me is $200.00 too low an asking price? The specs are shown in my profile. Nothing is wrong except the mysterious sound issue, which I told them about and advised them to get external speakers. I was hoping to get closer to $400.00 as I saw many going for on Ebay with less capability than mine. (This machine has been a dream!) Do you recommend my getting the original, round Harmon Kardon speakers to accompany the computer for sale?
Secondly, I went to the Apple Store yesterday and the associate knew very little to provide me with assistance. In attempting to do a erase and install of the OS from Disk Utility, my computer is now stuck on a grey screen with apple logo in the middle; it looks like in classic OS9.
It was asking for the install disk and I had 5 disks given to me from the guy that sold it to me off Ebay. I didn't know which one to insert so I chose "OS9" first. That's what put it in its current state.
After trying to backup or save items that I wanted to keep (iTunes library, documents, movies) I gave up and decided to sacrifice them all because the blank DVDs that I was using kept giving me error messages.
I have read here to: "Put your install disk in your Mac and Restart while holding down the C key." What should be on the screen when you put the install disk in?
"Click on Disk Utility and choose the hard drive you want your OS on." How do I know which HD to choose?"
Do I need to take this computer back to Apple or can I restore this myself?

The original Harmon Kardon speakers are hard to find and not compatible with many newer Macs but they do have good quality. If you got them, it would prove once and for all if the problem is with the sound chip on your computer, or just the speaker that is built-in, or some setting. My FAQ* explains how to prepare a Mac for selling:
http://www.macmaps.com/selling.html
Apple may have the correct install disks, if you misplaced yours. Give their AppleCare office a call.
- * Links to my pages may give me compensation.

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