IMac has gray screen with spinning wheel, but cannot login

After power failure last night, iMac has gray screen with spinning wheel when turned on, but does not go to login screen.

Having the same problem myself. iMac locked up and I had to hold the power button to turn it off. Ended up with the apple logo screen and spinning wheel. I tried the disk repair and got the same message as yourself, in that it couldn't repair it.
I linked up an external hard drive and installed OSX on it and booted from it. I was able to recover some files, but most I couldn't. I'm currently giving it a one pass erase in the hope (long shot) that a complete pass through the hard drive will show up any faults. Has anyone had this problem and been able to continue using the same hard drive? I really don't relish the thought of having to send it off to be replaced :-/
Assuming that the erase goes well I plan to put OSX back onto it and then run disk utility from directly on the drive and see if any faults show up. I'm kicking myself for not taking advantage of TimeMachine, but we live and learn.

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