Hu there,
If the DVD doesn't work with data DVDs, why not set it up in Target Disk mode?
Use the firewire port on the IMac and another Mac.
On bootup, press "T" on the IMac.....
This will put it into target mode
You can then install OSX using your main Mac, and the firewire'd drive will become accessible in the installer
Hope this helps
Dan
PS Looking at a machine like this for my daughter. Does the DVD playback work well?
Is it possible to multi-region the drive (I'm in the UK and buy DVDs from both Regions 1 & 2).......