Well if your copying LP's to the iMac, then Audacity is your best bet (or Audio Hijack Pro), but Audacity is free, and does the job well. I would not use Garageband for this purpose at all, too fiddly.
USB or Phono is fine. I personally use the line-in, phono option.
When you try to open the recorded file? Or software?
The only thing that I know that has no Power PC support now is Flash.