IMac won't boot from/install Lion. Why?

Question

I have a 2006-model iMac (iMac5,1 with a 2GHz Core 2 Duo processor and 2.5GB RAM; this is one of Apple's supported configurations for Lion) which has been running quite nicely for several years now. About a year or so ago I moved it to 10.6 which went smooth as silk. Last week I decided to move it to 10.7 and right about now I'm ready to throw this iMac in the effin' trash. It simply WILL NOT boot from OS X 10.7 no matter what.
I first put my 10.7 installer on the computer while it was running 10.6. I launched it, it copied a bunch of stuff, then restarted the computer. Then....nothing. I got the Apple logo with the spinner. I waited about 20 minutes for something greater to happen but nothing did so I forced a shut down. Unfortunately that attempt seems to have destroyed my previous 10.6 installation. Any further attempt to start from that hard drive yields an infinite spinner with the Apple logo but never any desktop or anything useful.
I then put my old iMac into Target Disk Mode, connected it to my newer iMac (iMac7,1 with 4GB RAM running 10.7.4), and used Disk Utility to reformat the old iMac's hard drive. That went fine. I then ran the OS X 10.7 installer on my new iMac, directing it to install onto the old iMac's hard drive. It took about 10 minutes to copy its files then directed me to restart which I did. I got the spinner-with-Apple for a few minutes followed by a spinner-with-circle-slash forever (about 15 minutes before I forced a shut down). I was able to reboot my newer iMac from its internal hard drive without any issues but every time I tried booting the newer iMac from the older iMac's hard drive I would get the spinner-with-Apple for a few minutes followed by a spinner-with-circle-slash forever thing. The same thing happened when I took the older iMac out of TDM and tried to boot it from its own hard drive. Trying that in verbose mode shows "Waiting for DSMOS" as the final line before the machine stalls. It is important to note that (a) this is a legitimately purchased Lion license that I bought last year, and (b) I'm trying to install it on an Apple iMac, not a Hackintosh.
Next, I ran the Recovery Disk Assistant to create a bootable 10.7 recovery USB drive. The creation of the drive went fine and I'm able to boot my newer iMac from the drive — but I cannot boot the older iMac from it, again getting the spinner-with-Apple for a few minutes followed by a spinner-with-circle-slash forever thing. Verbose mode shows the DSMOS error again.
My next step was to extract the "InstallESD.dmg" bootable system image from the installer app and clone that onto a USB drive. That went fine and I was able to boot my newer iMac from that drive but I was unable to boot the older iMac from that drive, again getting the spinner-with-Apple for a few minutes followed by a spinner-with-circle-slash forever thing with verbose mode showing the DSMOS error.
Next I tried to reverse things. I put my newer iMac into TDM, connected it to the older iMac, and tried to boot the older iMac from the newer iMac's hard drive. This failed too. I never got the circle-slash thing, only the Apple logo forever. Verbose mode shows the last line being "BootCacheControl: Unable to open /var/db/BootCache.playlist: 2 No such file or directory".
Finally, I pulled out a spare external hard drive. From my new iMac I booted from my USB drive (the one I cloned "InstallESD.dmg" onto), installed Lion onto the external drive, and booted successfully from the external drive. Everything was running perfectly. I ran System Update until everything was fully updated, then connected that external drive to the old iMac and tried to boot. Again, Apple logo forever with verbose mode showing the BootCacheControl error.
To ensure that the older iMac was fully operational I dug out the old OS install discs and ran the "extended" diagnostic. Everything came up perfect with no errors.
I then pulled out my OS X 10.6 DVD and tried booting the older iMac from it. That worked perfectly, and I was able to format and install 10.6 without any hiccups or issues whatsoever. The iMac is perfectly operational under 10.6.
So why the phargl can't I get 10.7 on this bloody machine?!?!?

Answer 1

In addition to MGW's suggestion...........
See the following Articles:
http://docs.info.apple.com/article.html?artnum=25497 Older versions of Mac OS than what comes with your computer
http://docs.info.apple.com/article.html?artnum=25517 Mac OS: Versions, builds included with PowerPC Macs (since 1998)
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Without the original System DVDs that came w/the iMac, all you have is a glorified doorstop. You need the System DVDs to troubleshoot. *Especially Install Disc #1.*
You can get replacement System Install & Restore CD/DVDs from Apple's Customer Support - in the US, [phone] - for a nominal S&H fee. You'll need to have the model and/or serial number of your Mac available.
If you're not in the US, you may need to go through the regional Apple Store that serves your location to find the contact number. Here's a list of links to all of those -
http://store.apple.com/Catalog/US/Images/intlstoreroutingpage.html