You should not need to reformat the MacBook. Do you have BootCamp installed on it?
If you have NO success in booting from the OSX DVD and doing an Upgrade rather than a clean install then try this ...
Boot the iMac in Target Disk Mode (boot iMac while holding down the T key) this will turn the iMac into an external drive.
Plug the iMac into the MacBook and it will appear as an external drive
Download and install SuperDuper! on the MacBook and create a full disk image of the macBook and save it to the iMac (this will take several hours)
Now you can run the Leopard DVD, format the MacBook and install a clean version of Leopard.
Once complete, mount the disk image which is stored on the iMac (you'll get a perfect copy of your old MacBook mounted on the Desktop)
You can run the Migration Assistant and this will import ALL your applications, settings and user files into your new OSX installation on the macbook.
When done, unplug the iMac and reboot the iMac .. you can delete the MacBook disk image from the iMac once your happy the MacBook is running OK.