My iMac won't login- what should I do?

I have an iMac 24" Core 2 Extreme 2.8 GHz 2 GB RAM 500 GB 7200 RPM 7,1 (http://goo.gl/0HiZQ)
It is currently unusable. I just installed Lion when it came out (I started the download the minute it came out) and I cannot use it. When what I think caused the problem happened, I was having FileVault encrypt my hard drive. I had prevented the computer from sleeping so it and Spotlight could do their thing. They had been working for a while when I came back and realized that it was frozen. The clock had not changed in a while and nothing would move. I did a button shutdown and I tried to reboot immediately. I'm not sure what happened next, but it was either:
(1) It showed a white screen then the Apple logo and a spinning progress icon. Now, whan I get this, the Apple logo is eventually replaced with a flashing crossed out circle. (I just did it again with safe mode and it wasn't flashing, so maybe I made that up.)
(2) It showed a white screen then the Apple logo and a spinning progress icon then a bar that did not move much then later went back to just the icon (I never actually saw it finish or move much since I walked away since it was taking so long) I think that this event, which no longer occurs, usually ended with the Apple logo being replaced by a stylized computer window with a flashing question mark. (I think it was flashing, but now that I saw the crossed out cirecle not flashing, I can't be sure of anything)
(3) It showed my icon to login almost immediately and then my password made it show the Apple logo and then it and a spinning progress icon. I have tried rebooting and one of the numbered events happened almost randomly (at least I think so, but I must have been doing things differently). Recently, I have been able to get my icon every time, and have booted into the recovery OS to no avail. My password will not unlock the hard drive to reinstall lion or to reset the password or anything else. It seems to stick on my correct password for much longer than incorrect passwords. My recovery key will not unlock my computer either, it just does 1 even if the code is incorrect. Now, whenever I get 1, the computer eventually turns off.
Target disk mode has caused the computer to show the large moving FireWire icon and have the drive show up in the other computer's disk utility, but never mount on that other machine. But that may not be caused by the problematic computer. Trying safe mode causes 1.
Message was edited by: lukemags

(COMPUTER FIXED) Hard drive had to be wiped due to FileVault password not working.

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