Even with a bad blu ray the system should still be bale to make it to the XMB. yellow and flashing red usually mean a YLOD from what you have described. the fat PS3 i have with a bad laser isn't even in the case and it boots up with CFW on i. You may want to look into a reflow of the CPU/ GPU chips on it. there are plenty of how to's on YouTube. One of the best i have seen is the one by Gilksy.
Here is a link for the first tutorial. it shows the light issue you were describing. take a look and see if its similar.