IMac Freezes in everything other than Windows 7

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My iMac was running Snow Leopard and Windows 7 via Boot Camp successfully with no issues until yesterday. The iMac froze in Snow Leopard and I had to manually reboot by holding down power button.
Since then OS X won't run, Windows is still OK. If I select OS X the iMac freezes on the grey screen. I've tried safe mode and still no joy as it freezes on the grey screen as well.
If I place my OS X 10.6 install disk in the dvd drive it reads the disk, stays on the grey screen and after 2 minutes I then get the Kernel panic screen to reboot. Tried on a 10.5 Install disk in case disk was the problem but it does the same thing (windows install disk works fine, so DVD player OK).
Have also reset PROM and NVRAM. Rebooted machine using cmd S into Linux to check disk and it found no issues.
Anyone got any other ideas. I have a full time machine backup so trashing the hard disk if I could would be OK.
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Replay

Just managed to get the cmd v command working but only with placing the OS X install disk in. It shows a long list of directories and folders that it tries to find the number of files but it can't count due to missing folder.
I'm wondering if Windows 7 has done something. I would love to get this machine in a position so I can wipe the whole disk as if new and reinstall OS X but as I mentioned before I get the Kernal panic if I place an OS X install disk in