Major start-up problems on IMac - Help, please

My IMac, new in Nov. 2008 and running OS 10.5.5 has been having trouble starting up and staying running over the past 10 days or so. I frequently get freeze-ups and get the grey screen with the flashing folder with a question mark during start-up attempts. I have tried various remedies I got on forums or in the Everything Mac manual including:
unplug and restart
remove peripherals and restart
safe boot
Reset PRAM
Reselect Start-up Disk
Permissions Repair through Disk Utility
Verify Disk through Disk Utility
I ran the hardware test and it said the hardware was OK.
By doing one or another of these methods I can generally get the machine going again (sometimes very slowly and after a few tries), but the freeze-up and restart problems are persisting and getting worse. Today I tried to reboot using the Installation Disk, but it just ejected the disk.
I have Windows XP running with Paralels - don't use it often. Last time I tried it said something about a Fatal Error.
I have backed up most of my important data. I was planning to buy an external hard drive to back up the rest, but I'm not sure I'll be able to complete this at the rate things are going.
Advice, please? Should I just break down and take it to the Apple Store?

I wanted you to know I have been using Apple computers for over 2 decades now and this iMac was the biggest headache EVER!..it would even turn ME to a PC but I have other plans.How many times I had to carry this thing 15 blocks and then they had the NERVE to hand it back to me,once all they did was reinstall the software, I could have done THAT AT HOME!..once the manager of the store hands it back to me,"ALL PROBLEMS SOLVED"!..well they were not..from day one, this was a "LEMON" and no one seems to care, not one person I speak to, not one person in that store....I know computers pretty well, I don't know HOW to write programs but anything other than that, people come to TONY with their problems before Apple Genius bar..what a JOKE that turned out to be!..so here I sit with an iMac,the insurance had run out the day the HARD DRIVE of this iMac decides to stop working...I have NEVER in my life had a dard drive break completely because I am not a heavy user of my computer, no games..and now it's down to emails and my blogs..Apple has changed me but in the wrong direction sadly..I am and always will be an Apple person...I can visit ALL my old Apple comp0uters because when I get a new one, I give my neighbors the old ones..they are STILL WORKING lemom iMac just to check emails and see if I can get it to work but I will tell you the bad sign,very first year I had it, I threw out the box it came in,I live in NYC and as I am taking a walk, a guy is throwing out the box to the SAME iMac..and THEN came the discussion with him about the numerous PROBLEMS On the NEW iMAC!!..I knew right there ,besides me knowing already, it was one big lemon I was stuck with till the end...well the END has finally,thank the gods, come!...and my next computer will be an Apple but not for STYLE, I always went for their great design but Apple has their head so far up an appendage and all about this iPad and iPhone and then the computers come next....believe me, when they sell that many iPhones and iPads...little is done for the real computer customers..and I have NEVER used a cell phone, never had the use for it, so NO iPhone and no iPad cause i love my Kindle...but I will tell you ,I am designing my next Apple computer and it will be that TOWER and then any size screen,maybe two for some reason...and all wireless if possible..but that tower is the ONLY way to go for me but I will use it "low end" not for a business and it's not that ugly and can always be put on the floor BUT YOU DESIGN AND TELL THEM, what you want in it, so you have total comtrol..the screen does NOT even have to be an Apple...but money money drives this company now, while in the past it was the true happy customer THAT MATTERED!! no more...hope you stay with Apple, get a PC(borrow one) and work with it, if you have not cause this iMac is NOT the way an Apple computer should act and turn you off to our community...and that's the other thing, Apple users, used to be a "community" cause we were the "small company that didn't make it"!...so we all stuck it out for so many years....helped each other out
Cheers..
Tony(NYC)

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