Help me do a fresh install on a Macbook 2008 pls?

My brother in-laws ex-wife recently passed away and while cleaning out all the memories they had together he found one of her old laptops among other things, which he gave to me. The laptop works great as far as i can tell, but i cannot log into it. He doesn't know the password she used and can't make heads or tails of the hint she left.

Anyways, i want to do a fresh install of OSX Lion. I have the dmg file from when i bought Lion, but have no idea of how to use it. I'm a Windows person with no knowledge of how Macs work. I did a little research to find that the lappy i have is basically only compatible with Lion.

Here are the questions that i have:

1: How do i burn/convert said dmg file to a DVD from a Windows system to be read as bootable to do the fresh install?

2: Does Macbook (early 2008) support USB boot/install, if so, how do i go about that.

I recently followed a tutorial on how to get to the "disk utility" screen but none of the commands (button prompts) have worked. No matter what i do, i always end up back at the login screen. I've also used PowerIso to convert the dmg to an ISO and burned it to a DVD, but that just puts a big NO symbol on my screen when i try to boot from the disk. THAT i believe is because of the speed i burned it at. Many tuts say to burn at 4x, but my burner doesn't go under 8x. So I'm looking for a workaround for that also.

I tried using PowerIso to create a bootable USB but get errors every time. Any help would be nice...