24" Intel iMac - Intermittent lack of screen image

I have a friends 24" iMac which has some performance issues.
It has been crashing and hanging a lot and occasionally has lines on the screen.
This could be a logic board or graphics issue, but my first thought was to reinstall the OS from scratch and during this process I have discovered a weird screen issue.
I began by booting using the original install disc and resetting his password
I then cloned the internal drive using superduper in preparation for wiping and reinstalling Leopard on the internal drive.
To achieve this I plugged the iMac and the external drive into my MacBook as a firewire target disk
(The firewire logo displayed normally on screen)
I then connected the external drive directly to the iMac and booted from the new clone to test it.
The apple logo appeared and then the login screen, after entering the password the desktop appeared, but the menu bar was halfway down and only part of the screen was actually displaying anything other than the original blue colour from startup. (It didn't look like a resolution issue)
I forced a restart and booted from the original internal drive, I was able to hold option and see and select the internal drive, but the computer then proceeded to startup with a black screen
This behaviour then persisted as I tried to repeat each of the following multiple times
Reboot while holding C to bootfrom the leopard dvd
Reboot, choosing external clone drive by holding option
Reboot while holding option and choosing internal disk
Reboot while holding option and choosing install dvd disk
Reboot without holding anything to automatically boot from the internal disk
At this point I called it a night
Today I turned on the machine and reset the pram followed by a successful boot using the clone drive and another successful boot using the internal drive so I proceeded to boot from the install disk, erased the internal drive and installed leopard.
The install proceeded without issue until the progress bar was nearly all the way there at which point I left the room for about half an hour
On my return the screen was black and I was forced to hold down the power button to restart at which point the grey screen appeared, followed by the apple logo and then the black screen again, but this time I could hear the leopard intro movie playing - it appears that everything is working normally apart from the screen
I have since held down Command and S to boot into single user modem where the terminal displays correctly on screen.
I suspect allowing the machine to cool was the reason I had initial success this evening, but what could cause this problem?
I am thinking a graphics card issue, but does that mean the graphics card is not involved in displaying the firewire target disk logo, single user mode or the different hard disk options available at startup?

Update:
Waiting several hours again allowed booting, but something is corrupted because the machine hangs badly (frozen screen and only the cursor moves)
I think there are BOTH hardware and software problems
At this moment;
•The iMac has performance issues with the original setup as received from my friend
•The iMac has performance issues with the new install of leopard and system migrated user account
•The iMac no performance issues and only minor graphics performance issues when booted from my MacBook as a Target Disk
I am posting from it right now and the only issue, which occurred on boot, was some lines on the screen
I am planning to boot again into the new leopard install, but with a new user account if I can get far enough to create one, otherwise I will enable root and see if that allows the system to run with any stability
I am expecting an hour or so of use to result in the blank screen issue again.

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