If you are able to boot to the Apple Hardware Test disc, not to mention pass all tests -- the problem is most likely a software error. Just to remove any doubt; take out any non-Apple RAM and clear the PRAM, then run another Apple Hardware Test.
If it passes that, then attempt booting from the hard disk. At what part of boot up does it hang?
The normal sequence is: Boot chime >> Apple Logo (Boot X) >> Apple with Spinning Gear (Kernel) >> Blue Screen (Launchd) >> Mac OS X Loading Box (LoginWindow) >> Your Desktop.
Knowing the exact point it hangs will greatly reveal where the problem is. Do you own Alsoft Disk Warrior? That is a miracle program that can fix directory issues.
I'll check back, let me know!
