Hello, my name is Dan.
I will do my best to help you, the only stupid question is the unasked one.
I think I can help with this. It isn't as big a deal as it looks.
Your friend is right in booting from the disk but a new installation of the operating system is probably not necessary.
To boot from the installation disc and the Mac is on then start at step #1.
If your Mac is off or will not boot from the hard drive then goto step #3.
1. Insert disc #1, it can be the original that came with your Mac or it can be a retail version newer than the original that came with the Mac.
2. If the disc opens then click on the Install OS X icon, if it does not automatically open then double click the disk icon on the desk top and then click Install OS X.
Your Mac will restart using the install disk.
3. If your Mac is on but will not boot up then insert the installation disk and turn it off by pressing and holding the power until it shuts down.
Now press the power to start it and hold the 'Option' key until the startup manager appears.
If your Mac is off then press the power to start it up, immediately press and hold the 'Option' key for the startup manager.
Insert the disc and click the circle with the arrow to refresh and then select the installation disc to boot from.
Once your Mac is booted from the installation disk the next step is to open Disk Utility.
Click continue at the Language screen, the next screen will be the Welcome to OS X.
At the very top of the screen will be a menubar with 'Utilities', from that drop-down menu select 'Disk Utility'.
There will be a list of hard drives and optical drives on the left of the window, if your drive is in that list then click on it once to highlight.
Now click on the First Aid tab, at the bottom of the Disk Utility window you will see a button called Repair Disk.
Select that by clicking on it. It will either return that everything is okay or that some things were wrong and they were repaired or it found something wrong and it can do nothing about it.
If everything checks out okay or if it does the repairs you then want to repair the permissions.
There will be a button close to the list of drives that says Repair Permissions. Click that to selected and give it time.
There may be a long list of permissions that repairs or there may be only a few.
There will also be some that say SUID that will not be repaired if you have 10.5 or above.
Once you have completed this then you can quit Disk Utility and the installer.
Do Not Install Anything.
Simply restart your machine by selecting it from the menu bar.
Your iMac has a wireless keyboard and that makes a little more difficult, not impossible.
If you happen to have a USB keyboard of any kind you would be best to use it. If it happens to be a Windows keyboard then substitute control for command.
Read the above over carefully before doing anything and if something isn't clear please ask me.
What this will do is help put things back the way they should be.