Greetings.
My folks received an iMac from a frustrated PC user (how nice)
The problem is that said user doesn't know the password for the account on the iMac, so we can't log in to it once we turn it on and get to the login screen.

We don't have the iMac discs, so we can't do a reset password. Naturally, this means that we also can't log in to change user accounts so that we can make our own password.

I tried sending my folks a bootable 10.7 disc, but nothing happens. The disc is not recognized and holding down the C key doesn't work. The iMac just boots into the login screen. Naturally, this means that we can't reset the password from the boot disc.

So, how can we just use the iMac without all this account/password nonsense? We're confused as to what to do.

[Spheric Harlot]

How did you create the "bootable 10.7 disc"?

You should be able to use any OS install disk with an OS newer than what's installed to reset passwords from the Utilities menu, or, worst case, format the internal disk and set it up from zero.

That will mean that iLife isn't installed, though.

You can order the original install disks that came with the machine from Apple support for a nominal fee.

I created the boot disc after I installed Lion on my machine by using this method:

How to make a bootable Lion install disc or drive | Macworld

I don't have another Lion disc. I don't understand why that disc just doesn't work.
The iMac will not boot from the disc and instead the iMac just goes through endless start up cycles with noises.

How much would the nominal fee be? Would I just call 1-800-My-Apple and say "install discs for iMac" at the prompt?

[Waragainstsleep]

Boot the iMac holding down Command-S. It will boot to white writing on black screen. Eventually it will give a prompt which mentions two commands:

/sbin/mount -uw /
/sbin/fsck -fy

Type the first one as it appears above and hit return. You can use the second one as well if you want, it will just spend some time checking the disk. If we are talking people who aren't so tech savvy, just use the first one.

After you enter that one type the following:
rm /var/db/.AppleSetupDone

Hit enter again. Then type "reboot" without quotes and hit enter again. You should then get the intro screen and the setup assistant which will allow you to put a new admin account in. Once logged into that one you can reset the passwords on the other accounts or delete them altogether from the system prefs.

[BLAZE_MkIV]

^What he said. With regards to the boot disk not working, is it an intel iMac or an older G5 imac?

It's a brand new intel iMac.
But whatever, we got the boot disc to work, but it literally took 40 minutes to boot from it. Once we wiped the hard drive clean, the iMac worked like new.
So what about the original iMac discs and the nominal fee?