McAfee Protection

If that password protection is anything like Norton DiskLock, you won't ever be able to access anything on the HD. You have to format it.

Generally programs like this install themselves in a very low level part of the HD. If you try to read from the disk at startup, you get the password prompt.

Hitting cancel and getting the floppy with flashing question mark means this. You're canceling your attempt to access the HD by hitting cancel. The HD was the boot device.. The flashing floppy question mark means the mac is asking for a different boot device (since it can't read the HD).

Only option is to boot with a Mac OS CD, and blow away the HD.