The power adapter for the DNS-323 supplies 5v & 12v power - as far as I know the 12v power is used only by the disks, so theoretically - if it was not available, it would/should be possible for the DNS-323 to power up but not recognize any disks at all.
What I find puzzling is that you say the HDD lights are blue - if the unit is seeing the disks as failed, those lights should either be amber or off, and if it has been reset to default and is not recognizing any disks I would expect the lights to be off.
You can try a firmware update - even if it's to the same version - if that doesn't fix it, there's not much else you can do - replacement is the next step - my DNS-323 failed earlier this year (stopped booting, power light just stayed flashing) and I replaced it with a ReadyNAS.