I'm a little late to this iMac rescue discussion, but here are some thoughts:
1) Get a firewire external drive that allows you to use your own hard drives. I 
frequently disconnect the hard drive and replace it with a DVD-ROM drive 
rescued from a PowerMac. It looks awkward - very awkward - but you can now load 
software from DVDs.
2) If you open the iMac, which is not too difficult, plan on doing as much work 
as possible; that is, replace the battery, install a larger hard drive (5400rpm 
is best due to heat), and if you have a replacement DVD-ROM drive this is a 
good time to do it - although I never bother as I use the external firewire 
drive.
3) Remember, on a good day a 350MB iMac is worth $50 and that is a pick-up 
price. Don't over improve. OS X 10.4 Tiger will bog it down horribly no matter 
how much RAM you put in it. OS X 10.3 Panther is okay, but in my experience OS 
9 remains the hands-down favorite to get the maximum performance out of this 
machine.

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