Thanks for looking. Can you help?

Issue is-

My wife has an Imac which wont boot up. On start up it shows a picture of a folder with a question mark, and thats as far as it goes.

We have had a look around the net and advice seems to be - OS is corrupted, and to reload operating system.

We have genuine Leopard OS disk, but when booting up with this inserted, still nothing apart from the folder with the ?
I have seen many people here conversant with mac's and was hoping someone could give us advice on anything to get it back up and running. It is quite important to her that she recovers the data from the hard drive, as it contains years of work relating to her BSc. (Hons) including her 15,000 word dissertation!

My thoughts are, either hard drive is dead or connection to hard drive has failed. Our local service centre want £60 just to run a diagnostic, plus any further costs for parts/labour (last time it cost us nearly £300 to replace a faulty PSU). Paying this kind of cash is a last resort, so if anyone can help in anyway, we would both be in your debt. TIA.