You didn't write explicitly that you had removed and (perhaps) junked the CD-ROM drive. It is not-at-all unknown for a damaged drive to inhibit another drive on the same ATA bus. You should also confirm whether the returned HDD needs jumpering as master or sole drive in the absence of its little ATAPI mate. You were fortunate to find a junked iMac with no worse problem than Quizzical Floppy. Keep in mind that the operative indication by QF is that the system 'cannot find' a valid (blest) System Folder on an accessible startup volume. If your externally set-up HDD worked externally, it is likely that the iMac cannot 'see' it now, which has to be the result of a cabling, power or controller fault.

You can live without the ATAPI drive if you are able to update firmware from OS 9 in another Mac. The advantage of being able to use a CD as boot volume should not be overlooked, however. A utility such as DiskWarrior cannot be used over a network, although it will certainly work from an attached FireWire drive.

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