I have a Mountain Lion InstallESD.dmg I also have a iMac 2007 model which I used an old install disk (incompatible) to access it's disk utility. I removed everything from my internal HD and reformatted as Macintosh Extended Journalled
Then I stuck InstallESD.dmg onto a USB and plugged in a second USB.
I formatted the second as Extended Journaled (GUID Partition Table) and burned the DMG from USB one to USB two.
I then turned my iMac off and rebooted holding alt (option). It picked up my bootable USB and I clicked it. It went onto the grey screen with the apple logo (I have been told it's normal) however after a short period of time, the apple logo changes to a prohibitary sign and a spinning cog shows underneath. I left my iMac for a long time and nothing happened. What Am I Doing Wrong?
NOTE: I only have access to disk utility, terminal and the essentials that can be used straight from boot disk